Parents paying homeschool teachers is getting cumbersome

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Hello Carol,

I am the Executive Director of a 501(c)3 non-profit homeschool co-op. We have always had all parents pay teachers directly for classes. Of course the number of checks written by members each semester,and unraveling the missing/lost checks each semester along with the myriad of other payment mysteries has prompted to us to wonder if we can have all parents submit the teacher payments to our group, then we cut a check to each teacher.

We would essentially gather all the money and then direct it to each teacher. One check from each parent for all their children’s classes, and one check to each teacher for all the classes they are teaching.

Can we do this?

Holly

Holly,

Thank you for contacting me.

Yes, you can collect all the payments from parents and then pay the teachers. This is how many homeschool groups, private schools, and college operate. But there are some things to warn you about:

1. Managing more money means you need good accounting software (links to some of my blog posts with software recommendations), one that can invoice parents and track who has paid and who still owes.

2. Additionally, since you have a lot more income, you may have crossed an IRS threshold and now need to be filing the annual Form 990 or 990-EZ (YouTube video explaining which form you need to file).

3. Worker classification. You need to determine if the teachers are employees or  Independent Contractors (opens a blog post series on worker status). This is not an easy determination to make. You need to consider many factors.


My book, Paying Workers in a Homeschool Organization. helps homeschool leaders determine if their teachers are employees, Independent Contractors or something else.

I also 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. Worker Classification consultation.

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Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Paying Workers in a Homeschool Organization Part 2 podcast

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UPDATE: I aired this podcast originally in 2014, seven years ago. It’s still very useful and paying workers is a topic that come up frequently for homeschool group leaders. I’ve updated this blog post with a few changes of IRS forms and links.

Do you pay workers in your homeschool organization?

Do you know what form to to filing with the IRS?

Homeschool CPA, Carol Topp, will share the details of what you need to know about paying workers in a homeschool organization in this 30 minute podcast. Part 2 of a 2 part series.

Listen to the podcast

Be sure to listen to the first part of this podcast (Episode #17) where Carol explains the difference between employees and independent contractors.

Show Notes:

Applying for EIN. Use IRS Form SS-4. Read this helpful article first Getting an EIN from the IRS. (updated link)

IRS forms to give to independent contractors (IC).

  • Use IRS Form W-9 to collect the IC’s legal name and EIN.
  • Read IRS Pub 15A Employers Supplemental Tax Guide.
  • Give Form 1099-MISC (UPDATE: as of Jan 2021, the Form is now 1099-NEC Nonemployee Compensation) to every IC paid more than $600 in a calendar year. Unfortunately Form 1099-MISC (now 1099-NEC) cannot be printed on your home printer. You must order them from the IRS or buy a set at an office supply store. I use FileTaxes.com (now called Yearli.com) to file and mail Form 1099-MISC. Yeali’s fee is now $5.50-$6.50 per 1099-NEC. (2021)

IRS forms to give to employees

  • Collect a W-4 and an I-9 (Immigration) from each employee. Get employment forms at IRS.gov
  • Read IRS Pub 15 Employers Tax Guide
  • Give each employee a W-2 at the end of the year. (I recommend Yearli.com to file and mail the W-2’s to employees)
  • Form 941 or 944 to pay your employer taxes (Social Security and Medicare). Find employment forms at IRS.gov.  I use Yearli.com to prepare and file 941/944.

What to do if you are paid by homeschool organization an receive a 1099-NEC?

  • File Schedule C Profit or Loss from Business of the Form 1040. List all your income and expenses from being a independent contractor.
  • Pay federal income tax and  self-employment tax (same as Social Security and Medicare for self-employed people) using Schedule SE (attached to your Form 1040.

Helpful Resources

Money Management in a Homeschool Organization

Cover Money Mgmt HS Org

Paying Workers in a Homeschool Organization

And if you are a workers in a homeschool organization and receive a 1099-NEC or need to report your earnings even without an 1099-NEC, this ebook will be very helpful:
Taxes for Homeschool Business Owners


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Paying Workers in a Homeschool Organization Part 1 podcast

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UPDATE: I first aired this podcast episode in 2014, 7 years ago! How to pay workers is still a common question and issue faced by homeschool groups leaders, so I am updating this post (mostly about my book Paying Workers in a Homeschool Organization which is now a full fledged 130 page book). The podcast is the original from 2014. An oldie, but a goodie!


Do you pay workers in your homeschool organization?

Are they employees or independent contractors? Do you know the difference?

Homeschool CPA, Carol Topp, will share the details of what you need to know about paying workers in a homeschool organization in this 30 minute podcast. Part 1 of a 2 part series.

Listen to the podcast here.

Be sure to listen to the second part of this podcast when Carol shares what forms you need to be filing with the IRS when you pay workers.

Helpful Resources

Carol mentioned a few helpful resources:

Paying Workers in a Homeschool Organization 

Money Management in a Homeschool Organization


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

How can our board members lead and get paid for it?

Hi Carol,
We have questions about how and if we are able to file as a 501(c)3 so that our directors can continue to lead the group while getting compensated for their time and efforts. Do you have any resources for this type of information?

Thank you for your time,

Lisa R

Lisa,

You asked an excellent question about how “our directors can continue to lead the group while getting compensated for their time and efforts.”

It is very difficult and sometimes not possible or desirable to compensate your board members. It creates conflicts of interest, self-dealing and could be forbidden by your state nonprofit laws and even exclude your organization from being granted 501(c)(3) tax exempt status by the IRS.

I’m glad you mentioned that you are in California because California has a law that forbids more than 49% of a nonprofit board to be composed of compensated individuals (or their family members).

This website (from nonprofit lawyers in California) explains the 49% rule:

Under California Section 5227, not more than 49% of a public benefit corporation’s governing body may be composed of “interested directors,” defined as –
(a) Any person who has been compensated by the corporation for services within the last 12 months, and
(b) Any member of such a person’s family.

Source: https://www.adlercolvin.com/what-every-nonprofit-b…
Scroll down to C. Conflicts of Interest and read the entire section.

One more resource in plain English is The California Attorney General’s Guide to Charities. http://npocpas.com/assets/guide_for_charities.pdf….
Go to page 20 and read 3. Duty of Loyalty and Conflict of Interest.


So in a nutshell, your board members need to be independent from conflicts of interest. Being compensated creates a conflict of interest.

I discourage nonprofit boards from being compensated. Most nonporift advocates encourage board members to serve as volunteers.

But you have two options:

Your board needs to be large enough that the individuals being compensated are the minority and are not guilty of self dealing or conflicts of interest. That may be very difficult to do.

Or the other option is to hire help like a bookkeeper or administrative assistant who would not be board members. This may free up the board to serve as volunteers and then have no conflicts of interest.

My book that addresses paying board members is Paying Workers in a Homeschool Organization

I hope that helps,

Carol Topp, CPA

1099-NEC replaces 1099-MISC for most homeschool groups

The IRS has introduced a new form called the 1099-NEC (for Non Employee Compensation), that will replace the Form 1099-MISC for most homeschool groups and homeschool businesses like Classical Conversation Directors.

The 1099-NEC is the form your homeschool group must give to any individual that you paid more than $600 in 2020. That might be your co-op teachers, CC tutors, or independent contractors like a web designer.

It is due to the worker by January 31, 2021. A copy gets send to the IRS as well, along with a Form 1096 Summary sheet.

The Form-NEC is quite simple. You simply fill in your organization’s name, address, and Taxpayer ID Number (TIN) more commonly called your EIN (Employer Identification Number).
Then also fill in the worker’s name, address, Social Security Number and the total amount they were paid in 2020 in Box 1.

How to file a 1099-NEC

Unfortunately, you cannot download and use the Form 1099-NEC found on the IRS.gov website. It has a special red ink that home printers do not duplicate correctly for the IRS machines to read.

Instead of using paper, I recommend Yearli.com as an online service I use to file Form 1099-NEC. Yearli mails a copy to your worker, sends a copy to the IRS, and creates a pdf file for you to keep. Easy! And it’s Core plan is FREE! The Core plan should be enough for most homeschool groups.

Learn more about paying workers

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.

Are hired homeschool teachers household employees?

Hello Carol!

I graduated from college in May and am currently working on my masters degree in Elementary Education. A friend put me in contact with one of her family friends for a job opportunity as a homeschool teacher while I complete my degree. I do not work for a tutoring company nor do I teach any other children besides the ones in this family.

My employer said he would send me a 1099 at the end of the year and is not withholding any income taxes from my paychecks. I am wondering if I should be paid as a household employee.

I am wondering how much I should expect to put aside for taxes.
Emma

Hi Emma,

Congratulations on your recent graduation.

Other CPAs may disagree with me, but I do not think that teachers or tutors are household employees. The IRS has a list of occupations that qualify as household employees, that is workers who do household work: “housekeepers, maids, babysitters, gardeners, and others who work in or around a private residence as an employee.” Teachers and tutors are not mentioned in that list.

The IRS explains that “Repairmen, plumbers, contractors, and other business people who provide their services as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but also how they do it.” (emphasis added)

So since your “employer” is treating you as an Independent Contractor, you are not a household employee.

It is debatable if being treated as an Independent Contractor is the correct classification for you. You may be the family’s employee (but not a household employee), if the family directs and controls your work. I cannot determine if you are correctly classified as an Independent Contractor from what you told me.


I usually recommend that self employed workers set aside 20%-30% of their pay to federal income taxes. You will pay both federal income and and self-employment tax, which is Social Security and Medicare taxes for self-employed people. Self-employment tax is 15.3% of your net earnings (i.e., your profit from being an Independent Contractor ). Then depending on your state, you may set aside a bit more for state income taxes; I estimate about 5% for state taxes.

So that’s a total of 30-35% of your pay for federal income tax, self-employment tax and state income tax.

Ouch!

I hope the family is paying you well!


I have a helpful ebook ?Taxes for Homeschool Business Owners that will be very  helpful to you as you prepare your taxes for 2020.

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

Homeschool mom has concerns about Classical Conversations

I’ve written several blog posts answering questions from Classical Conversations (CC) Directors regarding:

Usually these issues affect CC Directors the most since they are the business owners that carry the responsibility and liability for operating a licensed CC Community that is compliant with local, state, and federal laws.

But sometimes the individual families in a CC Community are affected by these issues as well.

Homeschool blogger at As for Me and My Homestead, Jamie, wrote a blog posts titled, “Why My Family Left Classical Conversations.” In her post she outlines several reasons her family left CC after four years.

If you scroll to the end, she explains several business practices that she found concerning enough to make the decision to leave behind a group of homeschool families she deeply enjoyed and loved.

Through all the rest of this, I pushed the nagging, “something isn’t quite right” issues out of mind, and tried to focus on the positives.  Fortunately for me, the person who brought the errata sheet to my attention also invited me to join a Facebook group where I learned more about Classical Conversations that went beyond the mistakes and poor curriculum.

Jamie writes about several issues that bothered her including:

  • CC Corporate calling themselves (and the Directors’ businesses) a “ministry,” which can be misleading
  • Communities (as for-profit business) using churches
  • Misclassifying tutors as Independent Contractors
  • CC Corporate and local Directors using teenagers and parents as volunteer labor

She calls these issues “the tip of the iceberg.”


It’s never easy to publicly criticize a homeschool program, especially if your friends are still enthusiastic about it.

Jamie ends her post with this wish:

My hope is that in reading this, other families will see that CC is a corporation that is not operating in a godly manner, while claiming the name of God, and will find out that they could do so much better with their money & time, than join a CC community.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

I started a nonprofit CC Community. Can I pay myself?

Greetings, I’ve started a Classical Conversations Community in Washington state. To be able to host my community at my church, we were asked that we create a non-profit organization so I did. I created a separate non-profit banking account from my personal account, thankfully. Honestly all money that has gone out has been for supplies and Independent Contractor payments. Although, it would appear within the CC framework that I can pay myself, I’m unclear with the non-profit status if I actually should, so I have taken no stipend at all for my work.

Can I actually pay myself a small stipend to help off set my personal expenses?

Thank you for any and all help you might be able to offer. I’m feeling extremely overwhelmed with all of this.

-WA

Dear WA,
Last week I talked with another CC Director in Washington State who formed a nonprofit. Her situation sounds very similar to yours.

Both she and you seem to lack a board or team of leaders. You see, a nonprofit is not owned by anyone (unlike a for profit business which does have an owner). Nonprofit organizations are operated by a board or team of people. This board the hires and pays staff such as you, the Director, or the tutors.

So to answer your question: No, you cannot pay yourself. A board of people unrelated to you by marriage, blood or business relationship, must vote on what all workers get paid. That is how a nonprofit is very different from a for profit business.

Resources

My book Paying Workers in a Homeschool Organization explains how a CC nonprofit should be paying its Director and tutors (i..e, as employees not as Independent Contractors).

The book is available in paperback $9.95 or ebook format $3.99

You’ll find my latest ebook Business Q&A for CC Directors to be full of questions just like yours from CC Directors and my answers. There are so many issues to learn and understand when running a Classical Conversations Community. Get accurate information on running your business from a CPA who has consulted with dozens of CC Directors.

Ebook (pdf) format only: $10.00

I think you will find both books very helpful!


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

San Antonio, Austin and Houston: Q&A with HomeschoolCPA this week

San Antonio, Austin and Houston, Texas will all be getting live Q&A time this week with Carol Topp, CPA, the Homeschool CPA!

San Antonio: Tuesday February 25, 2020
from 7:00 to 8:30 pm
on the lovely grounds of
Family Educators Alliance of South Texas (FEAST)
7735 Mockingbird Lane • San Antonio, TX • 78229
Register here for San Antonio

Austin: Wednesday February 26, 2020
from 6:30-9:15 pm
at
Calvary Worship Center (North Austin, close to TX 45 & N Mopac Expy)
14901 Burnet Road
Austin, TX 78728 
More information and to RSVP for Austin

Houston: Thursday February 27, 2020
from 6:30-9:15 pm
at
University Baptist Church  (Chapel area)
16106 Middlebrook Dr
Houston, TX 77059  
More information and to RSVP for Houston

Each event is free, but the organizers would appreciate you register so they have a head count.

The San Antonio event is sponsored by Family Educators Alliance of South Texas and the Austin and Houston events are sponsored by Texas Homeschool Coalition with much appreciation!


Each event will have:

  • A brief session presented by Carol Topp, CPA, the HomeschoolCPA on “Topp Tips for Running a Homeschool Organization”
  • A Town Hall session for you to ask question and get advice from other homeschool leaders
  • Q&A time with Carol Topp, CPA
  • Professional advice on finances, legal structures, taxes, employees, insurance, etc.
  • A chance to look at HomeschoolCPA’s books
  • An opportunity to be encouraged by other leaders who understand you!

I hope to see you in San Antonio, Austin or Houston!

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Do we file 1099s for teachers before we are a 501c3?

We board members just want to clarify something about issuing the 1099 to our five paid teachers. Do we need to wait until we have our 501(3)(c) status before we issue them?

In your book Paying Workers in a Homeschool Organization,  Chapter 3, you wrote about the difference between an independent contractor and a worker. I had a hard time trying to classify which one it would be for our teachers. Three of our teachers are former homeschool moms, one is a former homeschool student, and one is a single lady who has taught a variety of classes over the years. They really don’t have any expenses, but if they do, they get reimbursed for them. Is this enough information for you to tell me which category they fall under?

Thank you for taking the time to answer my questions,
Lisa

Dear Lisa,
You should not wait until your organization has 501c3 tax exempt status to issue the 1099-MISCs.

As soon as it formed as a nonprofit corporation, your homeschool group could legally start running your program, paying workers, etc.

As a matter of fact, your homeschool group is REQUIRED to file the 1099-MISC if it paid any individual more than $600 for their services in 2019.

That’s a requirement whether an organization has 501c3 tax exempt status or not.


To prepare your IRS Form 1099-MISC, I recommend Yearli.com. I’ve used them for years. It’s fast, easy, inexpensive ($4.99 per 1099-MISC) and all online, so there are no paper forms to mail!

If you use my Yearli referral link, you receive a 15% discount and I get a small referral fee. https://mbsy.co/rzrbp

Making a worker determination can be confusing. Unfortunately, I cannot determine if your teachers are Independent Contractors or employees from what you explained.

Since you have my book, Paying Workers in a Homeschool Organization, look at Chapter 3 and pay close attention to page 44 where I discuss workers who provide the key activity of the business.  It is a key factor that the IRS (and now states like California) uses in determining that your homeschool teachers are probably employees.

This blog post may help as well: Why I think most homeschool teachers should be paid as employees

I do offer a phone consultations to help you determine if your homeschool organization’s workers are employee or independent contractors. Worker Classification Consultation.
The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps. My fee for this consultation is $100/hour. Typically 1-1.5 hours. 

Please contact me to schedule a phone consultation.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders