California’s new ABC test for Independent Contractors. How will it affect homeschool groups?

California’s new law (AB5) puts into affect the 2018 ruling by the California Supreme Court in the Dynamex case that makes it more difficult to treat workers as Independent Contractors. The new law uses an ABC test introduced in the Dynamex case. It’s a simple 3-part test that makes it more difficult to legally pay workers as Independent Contractors.

The California Supreme Court said that the worker could only be an independent contractor if each (meaning ALL) of these three factors was met:

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact and
  2. The worker performs work that is outside the usual course of the hiring entity’s business and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

I recorded a podcast episode about the ABC test when it first came out. ABC Test for Independent Contractors (podcast episode)


How does this affect homeschool groups?

  • If your homeschool group is a nonprofit organization, these employment laws apply to your organization. Your nonprofit status (with or without 501c3 tax exempt status) does not exempt your organization from obeying the employment laws of the IRS and your state.
  • If you’re in a homeschool business, such as a CC Community, then you are affected by this ruling, especially if you live in California.
  • If you are an all-volunteer homeschool program (no one is paid), then this law does not affect you. 🙂

This blog post explains why I believe most teachers in a homeschool program should be paid as teachers: Why I think most homeschool teachers should be paid as employees


I’m a homeschool group leader. What do I need to do?

If you live in California, convert your teachers/tutors to employees starting January 1, 2020.

If you live in another state, strongly consider having me (or another qualified CPA) do a worker determination. There may be changes you can make to your homeschool program that are simple and inexpensive.

Will this spread to other states? What about the IRS?

Probably. I predict within 5 years, most states will adopt something like the California ABC test for Independent Contractor status.

So far the IRS is not using the ABC test, but they use similar criteria that causes me to conclude teachers in a homeschool program should be treated as employees not Independent Contractors. Read my reasons.

Which law do I follow? State or Federal/IRS?

The general rule is that you must follow whichever law is most generous to employees (not yourself as the employer or hirer). Federal and state default status is that workers are employees. The burden of proof is on the employer (your homeschool group) to prove they are eligible for independent contractor status.

I talked to a CPA about this a few years ago and he said we’re fine

or

My CC SR or AR said I’m OK treating my tutors as ICs; their lawyers know about the situation.

A worker determination should be in writing on the letter head of either a CPA, Enrolled Agent or attorney. Only those three professions are allowed to practice before the IRS. This determination, in writing and on the letterhead of the professional, may help abate any penalties for misclassifying workers if the IRS or your state audits you.

Do not rely on verbal statements. Do not reply on verbal statements made by CPAs, EAs or attorneys. Get it in writing. Do not reply on verbal statements made by non-CPAs, non-EAs or non-attorneys, no matter how reassuring they are that they have talked with a professional. Get an opinion specific to your organization in writing.

Ask for a statement in writing addressed to your particular business/nonprofit from a qualified professional who has assessed your situation in particular.

 

What if the parents pay the teachers directly?

or

My CC tutors are now sublicensees, not my Independent Contractors; I’ve been told that is OK.

The fact that you (as the homeschool group or homeschool business owners) do not pay the worker does seem to avoid the worker classification issue, but it introduces at least two other issues:

  1. You cannot control, supervise or direct that worker. They are their own business owner and you have no opportunity to oversee their methods or their performance. You cannot direct them; you cannot supervise them. Do you really want that? Would your parents accept this? You’re working with children, don’t you need to supervise and direct the people teaching the children?
  2. If you host your program at a church or other property-tax exempt facility (like a library), then the teacher/sublicensee tutor is conducting his or her business on church property. Does your church host know this? They may have a policy against conducting business on their property because it threatens their property tax exemption. Please refer to my Property Tax FAQ page for more information.

How can I learn more about paying workers?

My book will help


Paying Workers in a Homeschool Organization

  • Have a payroll consultation with Mary Musick, CPA (inactive) and current homeschool mom. Mary runs a bookkeeping service and will discuss payroll with you. It may not be as awful as you fear since you are probably hiring part-time, seasonal employees with no benefits. Her email is hfbkkpg@gmail.com.
  • Or have a payroll consultation with Jamie Buckland, The Classical Homeschool Consultant. Jamie runs payroll herself for her homeschool classical academy. She can do research on what your state payroll taxes are and reassure that if she can do it, you can do it! Jamie’s website is https://jamiebuckland.net/
Understand your risk, your legal and tax requirements, get compliant and get help! We don’t want homeschool organizations to get in trouble with the IRS or state agencies.

 

Carol Topp, CPA

Top 10 Tips for Homeschool Leaders: Paying Workers

 

Lots of homeschool groups hire and pay teachers to conduct classes. Sometimes these teachers are homeschool parents, but sometimes they are professional instructors. Homeschool leaders have a lot of questions about paying teachers and other workers.

 

 

Topics in this episode include:

• Independent Contractor or employee
• The factors the IRS considers in classifying workers
• What if parents pay teachers directly?
• How paying teachers affects your church host
• Can Independent Contractors receive tuition discounts

This is the fourth part of a 5-part series on Top 10 Tips for Homeschool Leaders, a workshop given to homeschool leaders in Wichita, Kansas.

Each episode can be found at HomeschoolCPA.com/Podcast. In the 5-part podcast series Carol will cover:
Episode # 180 Board duties
Episode # 181 Bylaws
Episode # 182 Preventing fraud
Episode # 183 Paying Workers
Episode # 184 Insurance and Record keeping

 

Featured Resource:

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.

 

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Join the webinar tonight on starting an academic homeschool program

 

Are you considering starting a homeschool program? An academic program, not a co-op and not a for-profit business either. But a nonprofit organization with an academic focus, maybe a classical emphasis, too.

You’re motivated! But where to begin?

Carol Topp, CPA, the Homeschool CPA and Jamie Buckland are teaming up to to help you!

ABC’s of an Academic Homeschool Program

An hour-long webinar on Monday February 18, 2019 at 8 pm ET

Jamie Buckland of Classical Program Consultant has run both a for-profit classical homeschool program and is currently the Executive Director of Appalachian Classical Academy, a nonprofit 501c3 organization. She will share about Administration and Curriculum

  • How your culture affects an academic program when it comes to logistics.
  • What to look for in the Board of Directors
  • Why have an Advisory Council
  • Why employ tutors
  • How to train employees
  • How to assess employees
  • Why charge tuition
  • How to communicate with families
  • How to determine curriculum for your program

Carol Topp, CPA is the owner of HomeschoolCPA.com and has assisted more than 80 homeschool organizations apply for tax exempt status. She is the author of 15 books and will share about Business

  • Why and how to organize as a nonprofit
  • Applying for 501c3 tax exempt status
  • A timeline: How fast can you get this done?

There will be time for questions and answers.

  • Cost is $30 and includes live webinar access and ability to view the recording.
  • Jamie’s extensive questionnaire for homeschool parents looking to create a homeschool program.
  • Copy of Carol’s ebook The IRS and Your Homeschool Organization.
  • Slide handout

Getting an hour with these two experts and their materials would typically cost you $165.

Carol Topp, CPA

HomeschoolCPA.com

How to start an academic homeschool program



Learn the ABC’s of starting an Academic Homeschool Program

Have you considered wanting to start a homeschool program? An academic program, but not a co-op and not a for-profit business, either. But a nonprofit organization with an academic emphasis–maybe with a classical education focus.

Sounds like a great idea! But where to begin?

Feeling overwhelmed?

We’re here to help.

Carol Topp, CPA, the Homeschool CPA and Jamie Buckland are teaming up to to bring you:

ABC’s of an Academic Homeschool Program

This 90 minute webinar is packed with information to help you launch an academic homeschool program.

The cost for the recorded webinar is $20 and includes :

    • Jamie’s extensive questionnaire for homeschool parents looking to create a homeschool program.
    • Copy of Carol’s ebook The IRS and Your Homeschool Organization to help you understand nonprofit and tax exempt status
    • Webinar slide handouts

Getting an hour with these two experts and their materials would typically cost you $165.


The ABC webinar with Jamie Buckland and Carol Topp was top notch! Very informative. It was presented so clearly and in an organized manner. I thank you ladies for making your knowledge available to us-Beth M.

The webinar was extremely helpful.-Erika


 

Jamie Buckland of Classical Program Consultant has run both a for-profit classical homeschool program and is currently the Executive Director of Appalachian Classical Academy, a nonprofit 501c3 organization. She will share about Administration

  • How your culture affects an academic program when it comes to logistics.
  • What to look for in the Board of Directors
  • Why have an Advisory Council
  • Why employ tutors
  • How to train employees
  • How to assess employees
  • Why charge tuition
  • How to communicate with families

Carol Topp, CPA is the owner of HomeschoolCPA.com and has assisted more than 80 homeschool organizations apply for 501c3 tax exempt status. She is the author of 15 books and will share about Business

  • How to organize as a nonprofit
  • Applying for 501c3 tax exempt status
  • Converting a for-profit business to nonprofit
  • A timeline: How fast can you get this done?

Then Jamie wraps up by discussing Curriculum

  • How to determine curriculum for your program

$20.00 includes unlimited viewing, ebook, handouts and handouts of slides.

Carol Topp, CPA

HomeschoolCPA.com

The federal government might be shut down, but you still have to file 1099-MISC by January 31

The US government is partially shut down, but taxpayers still must file their 1099-MISC forms by January 31, 2019.

Your homeschool business, tutoring program, nonprofit organization, co-op or community must give a 1099-MISC to anyone you paid more than $600 in 2018.

 

Greatland cpa academy webinar yearli logo

I recommend you use an online filing system like Yearli.com Core program by Greatland (my affiliate link). I’ve used them for years.

Yearli by Greatland is the best way for businesses to file 1099 and W-2 forms.

I used to buy forms at an office supply store, upload the software, type in the data, run the forms through my printer, and mail them all off! Even just a few 1099-MISC could take a long time! And heaven forbid you misfeed the red ink IRS forms into your printer (I did!). You could not make a mistake or back to the office supply store to but another set! Ugh!

Yearli by Greatland makes it so easy and they charge only $4.99 per 1099-MISC. They send a copy to the IRS and mail a copy to the recipient. Simple!

You’ll receive 15% off your filings because I referred you.
You will need the following information:

  • Your business or organization’s legal name, address and EIN number
  • The recipient’s name, address, SSN number and total amount paid in 2018.

Don’t forget you have to have the 1099-MISCs completed by January 31, 2019!

 

Carol Topp, CPA

HomeschoolCPA.com

 

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

When someone volunteers you

 

Have you ever been volunteered by someone else?

I’ve volunteered a lot over the years, but it was my choice to volunteer.

Once I was volunteered (more like assigned) by a fellow board member to do promotion for our annual fundraiser. I was absent at the meeting where they divvied up the jobs, so when this board member called to tell me what I had been “volunteered” to do, she said, “Well, I thought you’d want to help out. Everyone else is.”

So I was volunteered and guilt-ed into it, too!

I declined, explaining that I had not experience or gifts in marketing and promotion a fundraising event.

It doesn’t feel good to be volunteered into doing something does it?

A homeschool mom emailed me to say that she teaches at a local homeschool program. The homeschool organization gives free classes to board members. That’s very generous of them.

This teaching-parent is paid based on the number of children enrolled in her class and was pretty surprised when she was told she would have two of a board member’s children in her class and they would “be pro bono cases.” That means she wasn’t going to get paid for these two students in her class! This teacher has a written contract with the homeschool group and it does not mention any “pro bono cases.”

Pro bono means “for the public good” and refers to an attorney offering his or her services for free to help a public cause.

I find it odd that the homeschool organization used the term “pro bono” like this. They shouldn’t obligate someone else (the teacher in this case) to work “pro bono.” It’s like volunteering someone else!

Some homeschool groups waive tuition and fees for board members, but that doesn’t mean the group should stiff the teachers! It means the homeschool group absorbs the cost themselves.

So homeschool leaders, go ahead and be generous. Offer discounts to your hard working board members (but read this to make sure the discounts are not taxable income to your board members), but please treat your paid teachers well too!

Don’t go “pro bono” or volunteer someone else. It’s just not nice.

Carol Topp, CPA

HomeschoolCPA.com

Can CC Director offered reduced tuition to her tutors?

 

Can a Classical Conversations director gift an Independent Contractor or employee with free or reduced tuition?

Suzy

 

Suzy,
A Classical Conversations (CC) Director can give educational benefits (i.e., discounts on tuition) to Independent Contractors (IC) or employees, but (and this is a big, “but”) the value of these educational benefits is taxable income and must be reported on their W-2 or 1099-MISC.

So a CC director can offer a tuition discount to an IC or employee, but must add the value of that discount to the tax reports she gives to her tutors (1099-MISC or W-2).

And the worker must report her paid wages and the value of this discount/gift on her tax return as taxable income. You should warn her about that in writing and face-to-face, so they aren’t surprised at tax time!

We think that taxable income is only what comes in a paycheck, but the IRS defines taxable compensation to include “educational benefits.”

compensation includes salary or wages, deferred compensation, retirement benefits…, fringe benefits (personal vehicle, meals, lodging, personal and family educational benefits, low interest loans, payment of personal travel, entertainment, or other expenses, athletic or country club membership, and personal use of your property), and bonuses.[i]  (my emphasis added)

[i] Instructions for Form 1023 https://www.irs.gov/instructions/i1023/ch02.html#d0e1909

So, yes, a CC Director can offer free or reduced fees to an Independent Contractor or employee, but it is not a gift; it is taxable income and must be included in their wage and income reporting.

A CC Director should also check her license agreement with Classical Conversations to see if reduced fees are allowed.

If you have additional tax questions about being a CC Director, I wrote an ebook that can help!
Taxes for Licensed CC Directors is available from Classical Conversation. Find it here
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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Homeschool leaders summer reading: Money Management in a Homeschool Organization

 
This summer I’m encouraging homeschool leaders to take time to become a better leader by reading through my books. This week I’m featuring my book,

 

When I originally published this book in 2008, it was a short 40 page ebook and had a horrible cover.  I was still learning and self-publishing was brand new!
MoneyMgmtCover
An update was badly needed and I tackled that project in 2014. The book ballooned to 131 pages and I subtitled it “A Guide for Treasurers.” I feel like I poured my CPA brain into this book.

 

Cover Money Mgmt HS Org
 Topics covered in this book include:
Chapter 1: Your Treasurer is a Gem!
Chapter 2: Checking Accounts Done Right
Chapter 3: Super Simple Bookkeeping Basics
Chapter 4: Show Us Your Books! Regular Reporting on Financial Status
Chapter 5: Establish a Budget: You’ll Thank Me Later
Chapter 6: Get What’s Coming to You: Collecting Fees
Chapter 7: Do I Have to Report This? Reimbursement Policies and Avoiding Taxes
Chapter 8: Using Software to Stay Sane
Chapter 9: Fraud: It Couldn’t Happen to Us
Chapter 10: Need More Money? Easy Fundraisers for Homeschool Organizations
Chapter 11: Risky Business: Insurance for Homeschool Groups
Chapter 12: Paying Workers: Hiring Employees and Independent Contractors
Chapter 13: Homeschool For Profit: Running a Homeschool Group as a Business

 

 

 

Carol Topp, CPA

 

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