Is your homeschool co-op’s hired teacher really an employee?

A homeschool nonprofit I work with called me quite frantic.  They had received a letter form the IRS.  It seems that a former teacher of one of their classes  was asking for an examination of her status as an independent contractor (using IRS Form SS-8).  She thought that she should be classified as an employee of this homeschool nonprofit.  If the IRS agrees with this worker, the homeschool organization may have to pay back taxes (Social Security and Medicare) and perhaps penalties.

Fortunately this homeschool group did many things right:

1. They had all their paid teachers sign a Independent Contractor Agreement.
2. They did not control the content of the class, nor dictate to the teacher what curriculum she must use.
3. They offered no benefits to teachers.
4. They did not train their teachers.

But these are only a few of the factors to address in making a worker determination.

How about your homeschool group?  Would you pass an IRS examination?

Do your hired teachers sign an Independent Contractor agreement?

Do you avoid controlling their work as you might an employee?

Here’s an RS brochure regarding employee or independent contractor status (IRS Pub 1779).

 

My new book Paying Workers in a Homeschool Organization explains in detail how to determine of your worker is an employee or an Independent Contractor.

You may want to have a private consultation to discuss your unique situation. I offer a Worker Classification Determination consultation to put your mind at ease.

Carol Topp, CPA


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Paying Workers in a Homeschool Organization-2nd edition

$9.95 paperback
130 pages
Copyright 2017
ISBN 978-0-9909579-3-5

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Paying co-op leaders

meeting

Hello,
I am the leader of a support group with around 65 families.  Our group has a board of elders and by-laws.  We also have a co-op of about half the members of the larger group.  The co-op requires members to be a member of the larger group.  The co-op has separate leadership and it’s own checking account. The by-laws don’t address the co-op specifically.

The co-op pays the leadership and teachers from their account.  Tuition and fees are charged for participating families.  Teachers are written checks from the co-ops account monthly. “Teacher Gift” is always written in the memo in the checks. For the most part, curriculum for the classes are decided upon by the leadership of the co-op. Those in the leadership of the co-op serve no other volunteer function in the main group (their leadership on the co-op has been counted as their volunteer service for all the 7 years the co-op has existed ). Another member of the group has complained that their paid leadership service is not volunteer service and should not be counted toward the main group.  I do agree with this.  But it seems that we need to address this and some other issues that aren’t quite right.

Should our groups separate?  The larger group has not reviewed the co-op’s financial records. The co-op only gave out 1099’s last year for the first time.  I know that whatever is done, there will be hurt feelings and I am at a loss to know where and how to tackle these issues.  Where and what should I start with?

Thanks in advance.

Tina

Tina,

Here’s my advice:
PayingWorkersCoverRead my ebook Paying Workers in a Homeschool Organizations. Available as a pdf for immediate download for $7.00 at
http://homeschoolcpa.com/bookstore/paying-workers-ebook/

Good for your group for finally giving 1099MISC to the teachers!  But you should stop writing “Teacher Gift” in the memo. These are not gifts. They are payments for services.

In my experience, it is untypical for homeschool co-op leaders to be paid. That is because most co-ops cannot afford to pay leaders. Instead, many leaders receive discounted tuition (or free classes) in appreciation for their volunteer efforts.

Since you are paying these leaders, they are employees, not independent contractors as your teachers apparently are (although this statement concerns me: “curriculum for the classes are decided upon by the leadership of the co-op.” It sounds as if they are employees and not independent contractors). Employees require quite a bit more paperwork and may involve paying unemployment tax and workers compensation taxes. I discuss the difference between independent contractors and employees in the Paying Workers ebook.

You asked: “Should our groups separate? The larger group has not reviewed the co-op’s financial records.” Obviously the larger support group has neglected some of their responsibilities. See my blog post on leader responsibilities here:
http://homeschoolcpa.com/what-are-the-legal-responsibilities-of-homeschool-leaders/ Perhaps it is time to weigh the pros and cons of being separate. A lot goes into that decision.

You also said: “Another member of the group has complained that their paid leadership service is not volunteer service and should not be counted toward the main group. I do agree with this. But it seems that we need to address this and some other issues that aren’t quite right.”
You are correct that you cannot pay a volunteer, so perhaps the volunteer service is not fulfilled because they are paid.

If you wish to discuss your group’s issues and concerns, I do offer private phone consultation with homeschool leaders. It’s one of my most popular services. Read more about it here: http://homeschoolcpa.com/services/consultation/

I hope that helps.

Carol Topp, CPA
HomeschoolCPA.com Helping homeschool leaders
————

Hi,

I wanted to thank you so much for writing back and give a little update.  The officers met and decided to work at correcting any errors we may be making.  We have a meeting scheduled with the co-op directors in the next couple of weeks.  I think it is so important to set a good example in everything you do.

I do want to add that I was incorrect in that the co-op leaders receive tuition waivers instead of being paid.  Once we get all the information on the finances, then we can make the necessary decisions about our groups.  I am praying for a smooth road.

Your website is very helpful and I have shared it with all the officers of our group.   We are so very appreciative.

Tina

What business structure and tax forms are needed for a new homeschool co-op?

Hi,
I am a 15 year homeschooling veteran who started a co-op last fall.  I am now being asked by my church for ‘official’ documents to include:  business status, liability insurance, tax information.  I have a checking account for our co-op.
We offer 30 classes, one day a week, for 5 hours.  Six of the 30 classes are paid classes.  The student gives the co-op ~$2.00 each class.  I write a check to the teacher for $20.00 each time they teach.  The teacher always makes $20.00.  The student pays a varying rate dependant upon how many students are in the class.What business status do I need?

What tax forms am I required to file?
What type of liability insurance do I need if the parents are always on site and never drop off students?
Thank you greatly for the information.
Sincerely,
Lauren T
Lauren,
Good for you for starting a homeschool co-op. I’m sure it is a blessing for many families.Your business status could be a for-profit or a nonprofit. It depends on whether you own and run the co-op  as your businessor whether you have a board to make decisions. It also depends on how you opened up the checking account (although that can be changed). Did you use your personal name and SSN? Then you would be a for profit sole proprietorship.

Or did you organize without a profit motive and assemble a board to lead the group? Then you are a nonprofit.

These articles might be helpful:
Getting an EIN from the IRS
Checklist for new  homeschool organizations.pdf
Choosing a leadership teamThe tax forms depend on your business structure. Sole proprietors report business income on Schedule C of their 1040.

Most nonprofits apply for 501c3 tax exempt status to avoid paying taxes on their surplus.

There can still be a need for insurance, even if parents stay on site. Accidents can happen, damage to property can happen. You might benefit from reading my article on  Insurance for homeschool groups.

Since you are paying teachers, you should read my ebook Paying Workers in a Homeschool Organization. You need to determine their worker status as either employees or independent contractors and be giving them a W-2 or Form 1099MISC showing their wages.
You can learn a lot by listening to a podcast I recorded on Paying Workers.
HS Co-ops Cover_400My book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out covers a lot of your questions. It is available in print or electronic format. Read more here.I hope that helps!

Carol Topp, CPA

IRS auditors crackdown on independent contractors

IRS

According to CNNMoney, the IRS is going to do random audits of 6,000 companies that use independent contractors.

CNN Money: Auditors Crackdown on Indedendent Contractors

Homeschool organizations might be caught in the web if they are paying teachers as independent contractors.

Here’s what the article states:

(CNNMoney.com) — If your business uses independent contractors, get ready for new scrutiny. Hoping to boost tax revenue, the IRS and many state governments are cracking down on how companies classify their workers.

When employers report wages for independent contractors on IRS form 1099, rather than a W-2, they aren’t required to pay unemployment insurance, worker’s compensation insurance or payroll taxes for them. But the rules governing which workers are genuinely “independent” are strict — and often flouted.

The Internal Revenue Service launched a program last month that will randomly examine 6,000 companies over the next three years for employee misclassifications. The federal government estimates it will raise $7 billion over the next 10 through tighter enforcement.

Should you as a homeschool leader be concerned? Probably, if your organization has been paying people as independent contractors when they are really employees. How can you tell the difference?

I can help.

My book Paying Workers in a Homeschool Organization can help clear a lot of confusion, but perhaps you want to discuss your particular situation in a private, individual phone consultation.

I offer phone consultations to help you determine if your homeschool organization’s workers are employees or independent contractors. The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps.

To request a consultation, please contact me. I’m happy to help and relieve any anxiety you have about this confusing topic.

Carol Topp, CPA

 

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Paying Workers workshop now available

Homeschool leader, did you pay a volunteer, teacher, leader or worker for your homeschool organization in 2009? HomeschoolCPA< Carol Topp,  recorded her on-line workshop for homeschool leaders.  Just in time for tax season.

Paying Workers in a Homeschool Organization

was recorded on

Friday, January 15, 2010

and is now available for you!

or listen at the Talkshoe site here: HomeschoolCPA’s Workshops

Topics:

  • Volunteers. Can you pay a volunteer? How to reward volunteers.
  • Independent Contractors. What are they? What IRS forms need to be filed?
  • Employees? How are they different from Independent Contractors? What forms does the IRS require?

The workshop runs for one hour.

Look for more upcoming online workshops. Sign up for my newsletter to be informed of the next date and topic.

Carol Topp, CPA

Homeschooling Other People’s Children. Is It Legal?

Dear Ms. Topp,

I found your website while trying to research information on hiring a private homeschool instructor for a friend of mine.  She’s a single parent who adopted a girl from Russia.  She’s having a little bit of a problem in public school and I thought it might be a good idea to homeschool her for her middle school years at least to focus on her language skills and other abilities.

Can you point me to some information on whether she can even hire a homeschool instructor to work with her daughter?  I know this may sound crazy, but I keep thinking what her daughter needs is a governess.  Or maybe I’ve read too many Bronte and Austen novels.  Any help you could provide would be most appreciated.

Sincerely,

G.A.

Dear G.A.

I think you are absolutely correct in using the term governess to describe your friend’s situation.
I have a blog post titled “Is It a Homeschool Co-op or Mary Poppins?” that addresses a similar question.

I have been asked questions similar to yours several times, so it not an unusual idea. It is quite an old idea as you references (Jane Eyre is a favorite!)

I would direct your friend to do research in three areas:
1. Her state homeschool laws and see if a non-parent is allowed to instruct a child. I imagine it is allowed, she may just have to report the governess’ name and subjects covered on an annual basis (we do here in Ohio, for example)
2. Employer laws in your state.  A local CPA would be helpful here. The governess may be considered a household employee and that has easier tax reporting requirements (like annually, not quarterly filing).  Employer taxes (Social Security and Medicare) will need to be paid.
3. Perhaps consult with an attorney to draw up an employment agreement.  Perhaps a professional tutor or nanny/au pair service in your area may have sample agreements to use as a guide.

I hope that helps!

Carol Topp, CPA

Homeschool Leader, Do You Need Help?

I know that being a homeschool leader is not an easy job.  You have taken on extra responsibilities in addition to homeschooling your own children. But help is on the way!

I am so pleased to announce several ebooks and audios for homeschool leaders are now available


A 39 page ebook covering money management for small, medium and large sized groups. Sample forms and examples of financial statements in clear English are provided. Also covered are topics such as using Quickbooks, collecting fees, creating a budget, insurance, and hiring paid teachers. All written specifically for homeschool groups.
Price: $10.00 (immediate download as a pdf file)
Read more and order here

A 51 page ebook explaining the pros and cons of tax exempt 501c3 status. Is it needed? Is it worth it? Also covered are non profit incorporation, the application process, and how to maintain tax exempt status. Written specifically for homeschool groups.
Price: $10.00 (immediate download as a pdf file)
Read more and order here

A  62 page ebook containing some of the most frequently asked questions from homeschool leaders on the IRS, nonprofit and tax exempt status, boards, conflict, money, fund raising, volunteers, paying workers and insurance.
Price $8.00 (immediate download as a pdf file)
Read more and order here

A 20 page ebook that covers paying workers as employees or independent contractors.  Includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws. Written specifically for homeschool organizations.
Price: $7.00 (immediate download as a pdf file)
Read more and order here

Are You Ready? Tax Exempt 501c3 Status for Homeschool Organizations

audio download
An hour-long audio that explains the advantages of 501c3 tax exempt status for your homeschool group. What’s involved, what will it cost and is it worth it? All specifically for homeschool groups.
Price: $7.00 includes a file of the presentation slides
Read more and order here

An hour-long audio that explains the importance of boards, budgets and bylaws in a homeschool organization. Get your group set up correctly and running smoothly. All specifically for homeschool groups.
Price: $7.00 includes a file of the presentation slides
Read more and order here


I hope you find these ebooks and audios helpful as you run your homeschool organizations.
Carol Topp, CPA

Update on teachers as independent contractors

In Is Your Hired Teacher Really an Employee? I mentioned a homeschool group dealing with the IRS over teacher classification as an employee or independent contractor (IC).

They replied to the IRS via a letter stating their case for worker status as an Independent Contractor. They heard back from the IRS and the IRS determined that the teacher was misclassified as an independent contractor and should be reclassified as an employee.  The IRS wants $500 in back taxes (at least there are no penalties!)  The homeschool organization strongly disagrees and contacted a labor law attorney to help draft a letter back to the IRS.

Update:  The IRS issue was settled with the IRS winning the issue. The homeschool organization reclassified all their teachers as employees. There were no penalties to pay to the IRS, but then the State of Ohio audited this homeschool group and has fined them  $3,000-$4,000 a year for three years for unpaid unemployment taxes.  The State of Ohio sided with the IRS that the workers were employees and the organization should have been paying unemployment taxes on them.  Thankfully, the state can only audit back for three years.

The issue brought to light that many (perhaps most) homeschool organizations that hire teachers pay them as independent contractors.  Most homeschool groups are small nonprofits without accounting staff to manage the paperwork of withholding and paying employment taxes, creating W-2s, etc.  It’s easier to deal with an IC than an employee.  But the IRS reminds us the the facts of the situation determine worker status, not the organization’s preference.

Also, most hired homeschool teachers are only teaching about one hour a week and are given a lot of freedom in how to conduct their class.  This was all true for my client, but the IRS still determined the teacher was an employee. She even signed a IC agreement three years in a row, so even a contract was not enough evidence for the IRS.

Here’s what I’m doing:

1. Telling my homeschool clients that hire teachers to carefully consider worker classification.  Having a signed IC agreement is not enough.
2. Advising some of my homeschool clients to reclassify teachers as employees and start withholding federal income tax, Social Security and Medicare taxes.  These clients hire several teachers for several hours a week and exert a lot of control over what and how they teach.  One group also does teacher training and evaluations so the workers definitely look like employees.

3. Change the way my small co-op pays teachers.  The IRS letter stated , “if the worker had been an independent contractor, the parents would have directly paid the worker for the services she provided for their children.” Starting next semester we will have parents pay the hired teachers directly. See Paying teachers in a homeschool co-op to read our story

4. Trying to get out the word to homeschool leaders about the potential problems of worker misclassification and in general the employment laws regarding hiring paid teachers.

5. Encourage homeschool leaders to read my book Paying Workers in a Homeschool Organization. It can buy you a lot of peace of mind.

 

Please pass on this information to homeschool groups that you know hire paid teachers.  It doesn’t pay to be ignorant.

Carol Topp, CPA

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What's a volunteer worth?

Volunteers are worth their weight in gold. Most homeschool organizations are run completely by volunteers who are doing a wonderful service to their community and other homeschooling families. What’s a volunteer worth? Priceless? Independent Sector, a coalition of nonprofits,  calculates the worth of an hour of volunteer time.


The estimate for the value of volunteer hour jumped by 74 cents, from $18.77 in 2006 to $19.5
1 last year, according to Independent Sector (IS), a Washington, D.C.-based coalition of nonprofits and foundationsgirl-peeks-around-money.

Washington, D.C. had the highest hourly value ($30.10) .  The top states were all found in the Northeast: New York ($26.18), Connecticut ($25.75), Massachusetts ($24.29) and New Jersey ($23.62).

In all, 10 states eclipsed the $20 value and all but seven had values of more than $15.

Source: http://www.independentsector.org/programs/research/volunteer_time.html

Could your homeschool group survive if you paid your volunteers these wages? Probably not…they are indeed quite valuable.

I  am frequently asked if a volunteer can be paid. If you pay a volunteer, she is no longer a volunteer anymore.She  is an employees and your homeschool organization will owe employer taxes such as Social Security, Medicare, Unemployment and Worker’s Comp.

I recommend homeschool groups show appreciation though thank you notes, gift certificates, verbal appreciation and praying for your volunteers.

Carol Topp, CPA

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W-2s and tax filings for homeschool co-op teachers

A homeschool co-op treasurer asks about the tax filings for paid teachers:

Hi,
I am the treasurer for a new co-op we have setup this summer, and will be starting our class days in the beginning of September. I am looking to get some advice from you on how we need to define our mentors (teachers), and if we need to give them W-2’s, and if we need to with-hold taxes, etc.

We will have about 12 mentors, each teaching a class of 8-9 kids on Fridays. We follow a curriculum that the parents buy on their own. We try to keep the cost very low, so the mentors, which are all mom’s of kids in the program get paid $800 for the year.

We have already been setup as a South Dakota non-profit corporation, and would like to work towards a 501c3 in the future, but not this year. Our main issue right now is we need to move forward with setting up a checking account, which requires an EIN, and to get that we need to know if we have employees. Also, I want to determine how I need to be paying them, as far as tax with-holdings, etc.

Thank you,
Doug M, SD

Doug,
Congratulations on your new co-op. It sounds as if you are off to an great start! You should be very proud of all that you have accomplished.

As you described the co-op’s relationship with the paid mentors, they should all be classified as employees. Your co-op exercises quite a bit of control by telling them what curriculum to use, so they are not independent contractors.

IRS Publication 15 Employers Tax Guide has a nice checklist of forms and dates that you’ll need to file:

You should collect a Form W-4 from each employee for their information and federal tax withholding To make your job simpler you can tell your employees that the co-op will not withhold federal or state income tax since their wages are relatively small. The W-4 is kept by you and not mailed into the IRS.

The co-op will be responsible for paying federal employer taxes (Social Security and Medicare) and filing quarterly statements with the IRS (called a Form 941). See IRS Publication 15

If you have 501(c)(3) tax exempt status, your co-op would be exempt from Federal Unemployment tax. But the tax is rather small at 0.8% (See Form 940 and its Instructions)

At the end of the year you will issue a W-2 to each employee and mail copies of the W-2 and W-3 to the Social Security Administration. See Pub 15 (above) for details.

South Dakota may have unemployment tax requirements and workers compensation payments. Contact your state’s department of taxation or employment for details. I’m no expert on SD taxes, but here is a place to start: SD New Hire Reporting

Try not to be overwhelmed by all this. My new book Paying Workers in a Homeschool Organization can help you understand your payroll obligations.

Carol Topp, CPA


payingworkerscoveroutlined

Paying Workers in a Homeschool Organization-2nd edition

$9.95 paperback
130 pages
Copyright 2017
ISBN 978-0-9909579-3-5

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