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I am a homeschooling mother and Certified Public Accountant (CPA) combining my experience and knowledge to help micro businesses, families and homeschool organizations such as co-ops. This blog will cover topics on running a small business, working from home, taxes and personal finance.

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Update on teachers as Independent Contractors
(view similar articles on Non Profit Organizations)

In Is Your Hired Teacher Really an Employee?
I mentioned a homeschool group dealing with the IRS over teacher classification as an employee or independent contractor (IC).  Well, they heard back from the IRS about two weeks ago.  The IRS determined that the teacher was misclassified as an independent contractor and should be reclassified as an employee.  They want $500 in back taxes (at least there are no penalties!)  The homeschool organization strongly disagrees and contacted a labor law attorney to help draft a letter back to the IRS.  We'll see what happens next.

The issue brought to light that many (perhaps most) homeschool organizations that hire teachers pay them as independent contractors.  Most homeschool groups are small nonprofits without accounting staff and don't want to mess with the paperwork of withholding paying employment taxes, creating W-2s, etc.  Its easier to deal with an IC than an employee.  (But the IRS reminds us the the facts of the situation determine worker status, not the organization's preference)

Also, most hired homeschool teachers are only teaching about one hour a week and are given a lot of freedom in how to conduct their class.  This was all true for my client, but the IRS still determined the teacher was an employee (she even signed a IC agreement three years in a row!).

Here's what I'm doing:
1. Telling my homeschool clients that hire teachers to carefully consider worker classification.  Having a signed IC agreement is not enough.

2. Advising some of my homeschool clients to reclassify teachers as employees and start withholding federal income tax, Social Security and Medicare taxes.  Most will starting to do this January 1, 2007. These clients hire several teachers for several hours a week and exert a lot of control over what and how they teach.  One group also does teacher training and evaluations so the workers definitely look like employees.

3. Change the way my small co-op pays teachers.  The IRS letter stated , "if the worker had been an independent contractor, the parents would have directly paid the worker for the services she provided for their children." Starting next semester we will have parents pay the hired teachers directly.  (More on how that goes later.)

4. Trying to get out the word to homeschool leaders about the potential problems of worker misclassification and in general the employment laws regarding hiring paid teachers. 

5. Write an article on hiring paid teachers and post it on my website (soon!)

Please pass on this information to homeschool groups that you know hire paid teachers.  It doesn't pay to be ignorant.

Carol


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important
This is definitely very important info. I know that many homeschool groups hire teachers and speakers for their groups. This posts will be very helpful for avoiding possible penalties and interests on back taxes.

Your posts are very welcome and informative.

Posted by berrymorin on Oct. 28, 2006 at 11:07 AM



I agree!
Good morning! Excellent post. I am a CPA and my family's co-op is on track to fall into this situation. May I forward this to other interested parties?

Jeff Hoots, CPA
Indianapolis, IN
jeffhoots@sbcglobal.net
www.homeschoolblogger.com/encourageyou

Posted by Anonymous on Jan. 9, 2007 at 10:53 AM





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