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
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Copyright 2017
ISBN 978-0-9909579-3-5

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Paying co-op leaders

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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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