Is ignorance of tax law a good defense for homeschool teachers?

A homeschool leader became concerned about a paid teacher in her homeschool group. It seems this woman has not reported her income from teaching at the homeschool program for 7 years!

The teacher has refused to listen when others try to explain her tax obligation.

The leader told me that the teacher “stops me in mid sentence because she wants to claim ignorance if she were to get audited.”

She believes she could claim, “I didn’t know.”

 So is ignorance of the tax laws a good defense?

Not typically!

Typically, ignorance of the law is not a defense in our criminal justice system.  Under a long-standing legal fiction, defendants are, instead, presumed to know the law. Source: https://www.freemanlaw-pllc.com/cheek-defense-federal-tax-crimes/

 

But in this case, the teacher is NOT ignorant of her obligation to report her income.

She is willfully blind.

“Most courts agree that if the taxpayer willfully remains “blind” to his or her obligations under the tax laws, no valid defense can exist.” Source: https://thetaxlawyer.com/…/tax-law-mistake-ignorance…

 

In other words, since the paid teacher is being willfully blind, she has no defense as to why she is evading income tax.

And as a taxpayer I don’t like it when other people evade taxes!

 

Your responsibility as a homeschool leader is to file the required reports, either a 1099-MISC (for Independent Contractors) or W-2 (for employees) with the IRS by January 31 each year.

 

My book Paying Workers in a Homeschool Organization explains the required reports your homeschool group should be giving to its workers (and a whole lot more!)

Carol Topp, CPA

HomeschoolCPA.com

Should your homeschool Director serve as a board member?

Sometimes a homeschool groups gets large enough that they want to hire or pay their Director. In nonprofits that position is usually called the Executive Director or even Chief Executive Officer (CEO).

It is usually the first paid position in a nonprofit.

The Executive Director is similar to a pastor at a church. He (or she, depending on your denomination) is hired by the board of the church and does a lot of the day-to-day running of the church.

It’s similar in a homeschool nonprofit: the paid director is hired by the board to manage the day-to-day operations of the organization.

But should that hired Director serve on your board?

BoardSource (an excellent website for help in running your nonprofit board) says., ”

BoardSource also recommends nonvoting status for chief executives, unless not permitted by law. We embrace nonvoting status in recognition of the fact that actual or perceived conflicts of interest may naturally come along with the pairing of this position with board member status.

 

I, too, like the idea of a paid Director serving as a nonvoting board member.

I’ve seen it work well on some boards to have the Director attend meetings, give a report, share her opinion, etc, but not be allowed a vote.

When I served on my church’s board of trustees, the pastor came to the meeting, gave a report, was free to voice an opinion, but had no vote. That way he avoided a conflict of interest.

The paid Director should not vote because she has a conflict of interest: Is she thinking of the good of the group first and foremost or is she thinking about her job and her paycheck?

The volunteer Director does not have that conflict of interest, so he or she is usually still given voting rights.

If you decide to pay your Director:

  • Make sure you update your bylaws
  • Adopt a Conflict of Interest policy.
  • Read about paying people in your homeschool organization.

Need help with those issues?

 

My book, Homeschool Organization Board Manual can help with:

  • Sample Conflict of Interest policies
  • Sample Bylaws
  • Board descriptions
  • Compensation and Benefits for Board Members

 

Carol Topp, CPA

HomeschoolCPA.com

 

 

Summer reading for homeschool leaders: Paying Workers in a Homeschool Organization

Summer is a great time for homeschool leaders to catch up on some reading. I’m highlighting a book each week of summer and this week I’m spotlighting,

 

This book began in 2009 as a 20 page ebook. Homeschooling has changed a lot in the past 9 years and homeschool leaders are asking a lot of questions about paying workers. The book grew from 20 to 130 pages!
I expanded it in 2016 and then it needed an update in late 2017!
 

This 130 page book covers paying workers as employees or independent contractors. There are also chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

 Table of Contents
Chapter 1: Can You Pay a Volunteer?Chapter 2: Paying Board Members and Other LeadersChapter 3: Employee or Independent Contractor? Worker ClassificationChapter 4: Guidelines for Hiring Independent Contractors

Chapter 5: Tax Forms for Independent Contractors

Chapter 6: Payroll Taxes for Employers

Chapter 7: Tax Forms for Employers

Chapter 8: Sample Agreements

Chapter 9: Resources

Who should read this book?
  • Anyone running a homeschool organization that pays workers of any kind.
  • Anyone who wonders is a volunteer be paid?
  • Anyone who has ever asked,”Should a worker be treated as an employee or independent contractor?”
  • Anyone who gives payments or significant discounts to board members or volunteers.
 Carol Topp, CPA

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Can a homeschool group deduct tuition from a teacher’s pay?

A homeschool program charges $2,300  per student per year for tuition. Many of the teachers in the program also have their children enrolled in the program.

The leader, Lauren, was deducting the amount of tuition owed from the teacher’s pay and reporting only the difference that she actually paid the teacher.

For example:

Teacher’s earnings: $4,000

Tuition that the teacher owed: $2,300

Teacher’s paychecks: $1,700 ($4,000 less $2,300)

Additionally, Lauren was filing the teacher’s W-2 (or 1099-MISC) and reporting wages of only $1,700, but the true earnings were $4,000.

I advise that homeschool organization DO NOT net the teacher’s pay and her tuition owed like this!

Here’s why:

Picky CPA reason: This netting (subtracting the amount paid to the teacher by the tuition she owed) masks the true amount of teacher pay and the true amount of tuition received in your bookkeeping. The homeschool leadership needs to know the total income from tuition and the total expenses paid for teachers. Netting them masks the true income and true expenses. Additionally, the total amounts of income and expenses must be reported to the IRS (usually on Form 990 or 990-EZ).

More important reason: Taxes! 

The teacher’s payments for her services is taxable earned income. But her child’s tuition is a personal  expense and not tax deductible.

I recommend that the teacher should be paid the full amount earned (in my example, $4,000) and in a separate transaction, she should pay her tuition to Lauren’s homeschool program.

Lauren was advised that she will need to amend the W-2s she gave to her teacher to correct this mistake. This will be an unwelcome surprise to the teacher, but it’s the correct, legal amount to report.

I know it seems like extra work and more complicated, but netting or offsetting the two transactions could distort the total amount of compensation the teacher needs to report to the IRS. It’s mixing taxable income with a non-tax-deductible personal expense.

That’s called tax evasion and the IRS doesn’t take kindly to tax evasion.

Cover Money Mgmt HS OrgFor more information on paying workers and correctly recording transactions in an accounting system, you may find my book, Money Management in a Homeschool Organization, helpful.

 

Carol Topp, CPA

 

Why I think most homeschool teachers should be paid as employees

 

I state pretty clearly in my book Paying Workers in a Homeschool Organization (3rd edition) that teachers in a homeschool program should be treated as employees not Independent Contractors.

I’ve gotten some push back on my opinion.  I understand why. No one likes the expense and paperwork involved in employees, especially when they are  hiring part-time and seasonal employees.


But my goal is to keep homeschool organizations and their leaders out of trouble with the IRS and state governments. We don’t need a target on our backs! So I’m going to stick to my opinion because I think it’s correct and best protects homeschool leaders.


So let me explain why I have the opinion I do:

The IRS guidelines on worker classification are where I start. The IRS has the old 20-factor test and the newer 3 factor common law rules. I wrote about both of these guidelines extensively in Paying Workers.

But, I base my opinion on more than the IRS guidelines. I base it on hours of reading IRS rulings and tax court cases and my understanding of how homeschool programs operate.

I also base my opinion on this statement given by Bertrand M Harding, an attorney who specializes in nonprofit law. In his book The Tax Law of Colleges and Universities (Third Edition, Wiley, 2008) he writes,

“In at least one audit, the IRS agents asserted that, because instruction is such a basic and fundamental component of a college or university*, individuals who are hired to provide instruction should always be treated as employees because the school is so interested and involved in what they do that it will always exercise significant direction and control over their activities.” (emphasis added)

* The IRS was specifically addressing instructors at colleges and universities, but I believe their conclusion applies to public schools, private schools, and homeschool programs as well.

Some homeschool leaders differ with my opinion. I believe they are putting themselves at risk and I caution them about IRS penalties, etc. The Landry Academy IRS problems was a wake up call of how bad it can get. Although I don’t know the particular details on the financial penalties faced by Landry Academy, it was significant enough that the business declared bankruptcy.

I released a podcast on creative ways that homeschool co-ops can hire teachers without paying them as employees. Creative Ways to Run Your Co-op Without Employees

I hope that helps,

Carol Topp, CPA
HomeschoolCPA.com

Update to the Paying Workers Book

 

Paying Workers in a Homeschool Organization was released only a year ago, but it already needed an update.

Lots of things happened in the homeschool world that meant author Carol Topp, Homeschool CPA, needed to release a new edition.

Find out what happened and what has changed in the book.

For  the document of changes go to Changes to Paying Workers-3rd edition.docx

 

Featured resource

Are you paying workers in your homeschool organization? Can a volunteer be paid? Should a worker be treated as an employee or independent contractor? Do you know the difference?

Homeschool leader and CPA, Carol Topp, has the answers to your questions in her book Paying Workers in a Homeschool Organization.

This 130 page book covers paying workers as employees or independent contractors. There are also chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

Click Here for more information!

 

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Update to Paying Workers in a Homeschool Organization

 

I released the 2nd edition of my book Paying Workers in a Homeschool Organization in November 2016, 11 months  ago.

Now, less than a year later, it needs an update. Several events occurred that required me to research the issue of worker classification for homeschool organizations. As a result of my research, I have made several changes to the book.

The update is significant enough that I’m calling it the 3rd edition!

 

The paperback book will be unavailable for a short time while it is getting updated. I expect the paperback and Kindle versions to be ready by October 15, 2017.

Update (October 13, 2017): The paperback version has been updated. The Kindle update should be completed before November 1, 2017.

The ebook version (in pdf) is available now.

Wonder what changed? Or maybe you bought an earlier version of the book and you want to know what’s different.

I created a document explaining what was added or eliminated from the book between the 2nd and 3rd editions. I clarified when a teacher should be paid as an employee and added some additional Sample Agreements including an employment agreement.

Summary of Changes to Paying Workers 3rd edition (click to open the file).

Carol Topp, CPA

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Paying Volunteers Q&A with Homeschool Leaders

 

Can you pay a volunteer?

This short podcast episode (15minutes) from Carol Topp, the HomeschoolCPA, is the last excerpt from the Homeschool Leaders Retreat held in Indiana.

Carol Topp discusses how to pay (or thank) a volunteer and paying teachers in a homeschool co-op without causing tax problems for your volunteers (or your church host).

 

I mentioned my book

Paying Workers in a Homeschool Organization

Are you paying workers in your homeschool organization?

  • Can a volunteer be paid?
  • Should a worker be treated as an employee or independent contractor?
  • Do you know the difference?

Homeschool leader and CPA, Carol Topp, has the answers to your questions in her book Paying Workers in a Homeschool Organization.

This 130 page book covers paying workers as employees or independent contractors. There are also chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

 

Carol Topp, CPA

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Need advice when hiring your first employee? Discount program available to nonprofits.

Hiring employees can seem like a taunting task. My book Paying Workers in a Homeschool Organization can help a lot, but if you want extra services, consider contacting a service like HR Solutions Partners.

The HR Solutions Partners discount program at TechSoup provides human resources support services to eligible nonprofit organizations, charities, and public libraries throughout the United States.

With minimal experience, you can use HR Solutions Partners services for support in training employees, administering payroll, measuring employee performance, and more.

I’ve not used them, so I cannot vouch for their services, but it can’t hurt to call and talk to them.

Carol Topp, CPA

Paying Workers in a Homeschool Organization covers paying workers as employees or independent contractors. There are also chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

$9.95 paperback

$3.99 ebook

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IRS amnestry program for employers (how to avoid penalties for paying workers as Independent Contractors)

You may have heard about the IRS crackdown on misclassifying workers and the penalties that your business or homeschool program could face if  your business is audited by the Internal Revenue Service (IRS). For a true but sad story about the Landry Academy read this.

What can you do to avoid the IRS penalties?

The IRs has a program called the Voluntary Classification Settlement program (VCSP) .

Eva Rosenberg, the Tax Mama, explains the IRS Voluntary Classification Settlement Program in plain, clear English. Just the way your mama would talk to you.

The VCSP (aka the IRS amnesty program) allows employers to avoid the penalties for paying your workers as Independent Contractors when they should have been paid as employees.

IRS Amnesty Program? Yes There IS an Employer Amnesty Program

Eva explains,

For those employers who do apply for the VCSP, the savings can be substantial. For example, take a calculation based on unreported payroll of $625,000 in the prior year. Under the amnesty, the full payment to the IRS would be under $6,600. Without the amnesty, with the IRS looking back for only three years, it would cost the employer over $292,000 (for six years, over $620,000).

I can help you determine if the IRS amnesty program is a good option for your homeschool business or nonprofit organization. Contact me and we can talk about your options.

One homeschool group leader decided to apply for the IRS amnesty program and convert her tutors to employees. She said, “For $145 (her fee to the IRS), I can sleep better at night knowing the IRS won’t audit me or make me pay a penalty.”

Carol Topp, CPA

Helping homeschool leaders

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