In a very recent Chief Counsel Advisory, the Internal Revenue Service (“IRS”) clarified prior advisories and rulings regarding both the federal income and employment tax implications of payments made to and received by individuals for foster-home or difficulty-of-care services. In IRS Chief Counsel Advisory 202243009, 2022 WL 16551520 (Oct. 28, 2022), the IRS made it clear that although qualified payments received by individuals for providing qualified foster-home or difficulty-of-care services are not gross income to the payee, the payor is still responsible for the Federal Insurance Contributions Act (“FICA”) and the Federal Unemployment Tax Act (“FUTA”) employment taxes if there is an employer-employee relationship between the payor and payee, and no statutory exemption from employment tax obligations applies, such as the parent-child exemption. The IRS's 2022 advisory reads in pertinent part as follows:
The 2002 Field Service Advisory (FSA) stated in-home care payments to the service providers, whether related or not, are generally remuneration for employment. As such, the payments were subject to federal income tax as well as to FICA and FUTA taxes, unless there's an exception.
Notice 2014-7 reverses the conclusion for federal income tax purposes.Read More