We have recently started an inclusive homeschool co-op. I have three of your ebooks and I’m a bit confused on a few issues.
1. Each family pays the outside teachers directly. We do a registration process, but the cash or checks go to the teacher, not the co-op. Do we mark that money “in the books” or is that outside of co-op money?
2. I am also confused with the differences between volunteer parents teaching a class for reduced fees for classes and an Independent Contractor working off their tuition.
What am I missing?
Thank you so much for your time,
Thank you for contacting me. To answer your questions:
1. Since the funds never come to your group, they are not recorded in your books as income to your group.
2. Volunteer vs Independent Contractor (IC). It’s a world of difference because an IC is not supposed to receive any fringe benefits such as free or reduced tuition. If you give an IC fringe benefits, then they are an employee and you need to set up payroll, pay unemployment taxes, workers comp, SS/Medicare taxes, etc…The IRS is very clear and very strict about ICs not receiving benefits.
Employees of educational institutions can receive tax-free tuition discounts. Colleges and private schools do that a lot for their employees.
On the other hand, a volunteer can receive reduced or free tuition as a nontaxable benefit if it is insubstantial. If the free tuition is substantial, then the IRS would consider this compensation and the volunteer should report it as taxable income on her tax return. Read more about insubstantial benefits to volunteers.
This explanation may help:
(this is from an article “Money, Taxes and Your Homeschool Family” in the March/April edition of The Old Schoolhouse magazine. Read the full article here: https://ow.ly/uAkhI
Teresa, a homeschool mom who teaches at a co-op where her own children take classes, was told by her co-op that they would just deduct her co-op tuition from her income as a teacher. Teresa’s co-op paid her as an independent contractor and this arrangement didn’t seem correct to her.
Fortunately, she emailed me, asking, “Can I work off my co-op fees by teaching a class?”
The answer is no, you cannot.
The homeschool co-op should pay Teresa with a paycheck. Then, as a separate transaction, Teresa should pay her fees to the co-op. It is important to separate the two transactions because of taxes. Being paid for teaching is earning taxable income. Paying tuition is a personal expense and not tax deductible. The two do not negate each other for tax purposes.
It may seem like more work for the co-op’s treasurer to pay and collect money from the same person, but the separation is important for clarity and correct reporting of taxable income to Teresa.
I hope that helps explain the difference.
My new book Paying Workers in a Homeschool Organization can help homeschool leaders understand how to properly set up compensation for volunteers and Independent Contractors.
Carol Topp, CPA
Paying Workers in a Homeschool Organization-2nd edition
What if the volunteer teachers make less than $600/year? Do they still need to be on payroll as employees as described above?
Becky, “Volunteer” teachers cannot get paid. They are no longer volunteers if they get paid.
The $600 threshold you mentioned is when a 1099MISC needs to be given to an independent contractor. It does not apply to giving independent contractors benefits (like free tuition), nor employee benefits, nor the difference between ICs and employees.
If you pay your independent contractor less than $600 a year and offer benefits such as free or reduced tuition, the amount of the free or reduced tuition needs to be included in the total income reported to them. You may not need to issue a 1099MISC if that total is less than $600, but the IC is supposed to report her total income, including the value of the free or reduced tuition, on her tax return. Some organizations give a statement of earnings to ICs in lieu of a 1099MISC.
For clarification, if the families are paying the teachers directly, can the co-op offer childcare for a teacher’s children or reduced tuition for older the teacher’s children since they are not an Independent Contractor through the co-op (the money is off the books)?
Or are the teachers still an independent contractor through the co-op because they sign a contract even though no W-9 or 1099MISC is needed (since the money is off the books as individual parents pay them)?
I’m hesitant to answer this question because I’m a CPA and not an expert in hiring and employment law.
It seems as if there is a benefit your organization is giving to the teachers, so there may be an implied agreement of compensation for services, even though no money is given from your organization to the teachers. These benefits are usually taxable compensation. Remember, compensation is more than just a payment of money. It can be the offering of benefits.
If the teachers sign an agreement with the co-op then there is even a stronger indication that the benefits of free childcare or reduced tuition are taxable benefits.
Carol Topp, CPA