Are volunteer teachers in a homeschool co-op allowed to get free or discounted classes? Do they need to claim the amount on their yearly income?
We have independent contractors who work for our homeschool organization. Are they allowed to get discounted classes instead of getting paid their full amount of payment?
How do we do the paperwork properly?
Mr M.
Dear Mr M,
Volunteers are treated differently than your paid independent contractor teachers, so I will respond to each separately.
Volunteers
Volunteers may receive discounts or free classes from your homeschool organization. It is not included in their taxable income, if it is insignificant. It should be understood by everyone that the discount is in appreciation of the volunteer’s efforts and not payment for services. The volunteers should understand that discounts are not guaranteed.
Independent Contractors
Independent Contractors (IC) can receive discounts from their class fees, but the discount needs to be added to their compensation when reported on a 1099MISC. Even if the IC doesn’t receive an 1099MISC from you, the value of the discounted classes should be reported as income on his or her tax return. You may want to explain that in a letter or include it in your written Independent Contractor agreement.
Can you discount a class in lieu of paying a teacher?
Homeschool organizations should not be offsetting an independent contractor’s payments for her services, which is taxable earned income, by the amount the contractor owes for her child to attend your co-op classes, which is a personal expense (i.e. not tax deductible).
I recommend that the teacher should be paid the full amount earned and in a separate transaction, she should pay her tuition to your co-op. 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 IC needs to report to the IRS. It’s mixing taxable income with a non-tax-deductible personal expense.
For 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
