New Ebook: Paying Workers in a Homeschool Organization

June 25, 2009

My friends, Kristen & Denise, at Homeschool Group Leader are giving away a copy of my newest ebook:

Paying Workers in a Homeschool Organization.

(I don’t even have this up on my website yet, so you are really getting first grabs!)

I get asked a lot about paying teachers, administrators and volunteers by homeschool leaders. I think this 17 page ebook will answer a lot of questions.

To get your free copy, leave a comment on Homeschool group Leaders Facebook page here:  Homeschool Group Leader Facebook page

All you have to do to get your free copy is two simple things by the end of June:
1. JOIN our Facebook group and POST a comment or an answer or ask your own question on it: I Am a Homeschool Group Leader
2. Then, BECOME a fan of our Facebook page, Homeschool Group Leader

Become a fan and you’ll be e-mailed the book within 48 hours.

This offer is only good until the end of June.

Kristen & Denise have big hearts and desire to help homeschool group leaders. They have big plans for offering support, so become a fan and learn what they are offering and connect with other homeschool leaders.

Carol Topp, CPA


Update on teachers as independent contractors

March 27, 2009

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).   They replied to the IRS via a letter stating their case for worker status an an Independent Contractor. They heard back from the IRS and the IRS determined that the teacher was misclassified as an independent contractor and should be reclassified as an employee.  The IRS wants $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.

Update:  The IRS issue was settled with no penalties, but then the State of Ohio audited this homeschool group and has fined them  $3,000-$4,000 a year for three years for unemployment taxes.  The State of Ohio sided with the IRS that the workers were employees and the organization should have been paying unemployment taxes on them.  Thankfully the state can only audit back for three years.

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 to manage the paperwork of withholding and paying employment taxes, creating W-2s, etc.  It’s 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, so even a contract was not enough evidence for the IRS.

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.  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. See Paying teachers in a homeschool co-op to read our story

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. Encourage homeschool leaders to read the chapter on hiring workers in my ebook Money Management for Homeschool Organizations.

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

Carol Topp, CPA


Is your homeschool co-op’s hired teacher really an employee?

February 26, 2009

A homeschool nonprofit I work with called me quite frantic.  They had received a letter form the IRS.  It seems that a former teacher of one of their classes  was asking for an examination of her status as an independent contractor (using IRS Form SS-8).  She thought that she should be classified as an employee of this homeschool nonprofit.  If the IRS agrees with this worker, the homeschool organization may have to pay back taxes (Social Security and Medicare) and perhaps penalties.

Fortunately this homeschool group did many things right:

1. They had all their paid teachers sign a Independent Contractor Agreement.
2. They did not control the content of the class, nor dictate to the teacher what curriculum she must use.
3. They offered no benefits to teachers.
4. They did not train their teachers.

How about your homeschool group?  Would you pass an IRS examination?  Do your hired teachers sign an Independent Contractor agreement?  Do you avoid controlling their work as you might an employee?  Here’s a helpful brochure regarding employee or independent contractor status (IRS Pub 1779).

I’ve written about paying teachers in a homeschool co-op setting:

Paying teachers in a homeschool co-op

W-2 and tax filings for teachers

Carol Topp, CPA


Is it a homeschool co-op or Mary Poppins?

February 4, 2009

I started my website HomeschoolCPA to help homeschool organizations, but sometimes the lines between a family homeschool and a homeschool organization get a little fuzzy. Here’s one example of the new and creative ways the people are homeschooling today.

I am considering starting a homeschool with a group of 5 children. They are all from different families and none of them is my own. I have a Masters degree in education and am comfortable working as an independent contractor. I plan on teaching these children in one of the boy’s home with the parents’ blessing. Is this legal? What do I need to do to set it up? Would the parents need to set up a homeschool co-op? I am having difficulty finding information about this for Maryland. Thanks for your help!

Mrs. A in Maryland

Dear Mrs A,

Congratulations on your new venture. Teaching other people’s children is certainly a legitimate business. You will be a modern day governess. (like Mary Poppins!)

marypoppins

I do not believe the parents need to set up a homeschool co-op. But you need to set up a small business. I recommend these steps:

* Pick a business name, although you can use your own name

* Consider opening a business checking account to keep your business and personal expenses separate (it helps at tax time)

* Have a written agreement with the parents about your duties and your fees (i.e. how much and when will you be paid)

* Keep good records of all our expenses, especially mileage. Read my Small Business Start-up Guide available to download here: Small Business Start Up Guide

* Set aside 20-30% of your income after expenses (i.e. 20-30% of your profit) to pay income tax and self employment tax. You will probably also need to make quarterly estimates payments to the IRS. Here’s a great blog to help you learn more about being self-employed. http://junewalkeronline.blogspot.com/

I’m not familiar with Maryland’s homeschooling laws, but here in Ohio we must notify if someone other than the parent does a majority of the instruction. Maryland may have a similar notification rule. You might want to do a little digging on-line and ask the families that are hiring you about Maryland’s homeschooling laws.

Best of success to you!

Carol Topp, CPA


W-2s and tax filings for homeschool co-op teachers

January 22, 2009

A homeschool co-op treasurer asks about the tax filings for paid teachers:


Hi,
I am the treasurer for a new co-op we have setup this summer, and will be starting our class days in the beginning of September. I am looking to get some advice from you on how we need to define our mentors (teachers), and if we need to give them W-2’s, and if we need to with-hold taxes, etc.

We will have about 12 mentors, each teaching a class of 8-9 kids on Fridays. We follow a curriculum that the parents buy on their own. We try to keep the cost very low, so the mentors, which are all mom’s of kids in the program get paid $800 for the year.

We have already been setup as a South Dakota non-profit corporation, and would like to work towards a 501c3 in the future, but not this year. Our main issue right now is we need to move forward with setting up a checking account, which requires an EIN, and to get that we need to know if we have employees. Also, I want to determine how I need to be paying them, as far as tax with-holdings, etc.

Thank you,
Doug M, SD


Doug,
Congratulations on your new co-op. It sounds as if you are off to an great start! You should be very proud of all that you have accomplished.

As you described the co-op’s relationship with the paid mentors, they should all be classified as employees. Your co-op exercises quite a bit of control by telling them what curriculum to use, so they are not independent contractors.

IRS Publication 15 Employers Tax Guide has a nice checklist of forms and dates that you’ll need to file:

You should collect a Form W-4 from each employee for their information and federal tax withholding To make your job simpler you can tell your employees that the co-op will not withhold federal or state income tax since their wages are relatively small. The W-4 is kept by you and not mailed into the IRS.

The co-op will be responsible for paying federal employer taxes (Social Security and Medicare) and filing quarterly statements with the IRS (called a Form 941). See IRS Publication 15

If you were 501c3, your co-op would be exempt from Federal Unemployment tax. But the tax is rather small at 0.8% (See Form 940 and its Instructions)

At the end of the year you will issue a W-2 to each employee and mail copies of the W-2 and W-3 to the Social Security Administration. See Pub 15 (above) for details. I go to an office supply store in January for the forms and usually a software program is included.

South Dakota may have unemployment tax requirements and workers compensation payments. Contact your state’s department of taxation or employment for details. I’m no expert on SD taxes, but here is a place to start: SD New Hire Reporting

Try not to be overwhelmed by all this. A lot of it is start up paperwork. You may want to see if there is a local CPA who can help you or at least check over the forms the first time you complete them. You could also consider using software such as Quickbooks and their Payroll feature (an additional add-on).

Carol Topp, CPA


Paying teachers in a homeschool co-op is a sticky situation!

January 16, 2009

In a yahoo group for homeschool leaders Amy posed a familiar problem: paying teachers at a homeschool co-op

For the past several years, our group has spent more (thousands more) than we have charged our members. We’re not technically “in the red” because of more prosperous years in the past. The reason   we are spending so much money is that over 90% of our income goes to paying our parent-teachers ($15-$20/hour)! The rest of the money goes toward classroom supplies. I am sure that most parents are unaware of how the finances of this group are managed.

Have you heard of groups paying their teacher/parents? What do I need to understand about the various homeschool support and cooperative group structures that I don’t currently comprehend?  Help!
-Amy

Amy,

Your situation sounds very familiar to me. I too was treasurer of my 40 family co-op and found that 75% of our budget was going to pay 4 paid teachers. The other 20 teachers were volunteer parents, myself included. Not all the families were using a paid teacher, but all were chipping in to pay for them. We also were finding that people were offering to teach because they thought they could get paid. We were losing our cooperative spirit. I knew something needed to change.

About the same time I was helping another homeschool group with some independent contractor/employee issues with the IRS. I wrote about it on my blog. You can read about it here (Is your homeschool group’s hired teacher really an employee?) and here (Update on Independent Contractors). We decided to follow IRS guidelines and have the parents pay the teachers directly, like you would pay a piano teacher. The co-op was no longer paying the teachers.

I did some number crunching and found that we could lower our co-op fee from $150/family/semester to $75/family/semester. In addition we offered a $50 discount for teaching a class. What happened was amazing! Wonderful, talented homeschooling mothers volunteered to teach a class! We had more volunteers than we could accommodate. REALLY! If a mother volunteers to teach a class she only pays $25/semester for her family to attend 3 hours of classes at our co-op. If her child attends one of our paid classes (there are only 3, guitar, art and Spanish) then she pays the teacher directly. For example, I pay $65/semester for my daughter to take an art class. I think the teacher is worth it. You can visit my co-op’s website at www.masoncoop.org for details.

This got us out of the sticky employee/IC situation with the IRS. I’m writing fewer checks. It made my job as treasurer a lot easier and no 1099MISC forms at the end of the year. No one complained. The spirit of cooperation has returned. YEAH!  I’ll also add that we let the volunteers decide what they wish to teach. If we cannot find a Spanish volunteer, no Spanish class is offered. If enough parents want Spanish we may see if a teacher can come to the co-op. We give her a room and she collects her fees from the parents directly.

Money_thumbnail

I wrote a chapter in my ebook Money Management for Homeschool Groups on employee/IC status. You can find it all on my website www.HomeschoolCPA.com Look under ‘Resources’. The issue of paying teachers as employees is too important to ignore. Your group may have to consider some big changes.

Good Luck!!

Carol Topp, CPA


Can a co-op refund fees to members?

November 23, 2008
A homeschool co-op treasurer in South Carolina asks if she can refund supply fees to the co-op’s members:
Carol,
I am the treasurer for a mid-sized home school co-op. We currently have about 45 families. The co-op has been in existence for about 10 years and has always operated as an unincorporated organization with a checking account under the ss# of one of the board members.
Our co-op charges a set fee for each class which is passed on to the teachers (moms), and we also charge an additional supply fee if the teacher feels it is needed. I took over the books about 2 years ago and since that time we have been able to track expenses on a per class basis. We end up at the end of each year with a surplus. I am wondering if we can refund unused supply fees by class to the families who paid the fees initially. On your web site you state that surplus money should not be distributed. Does that apply in this case?
Also, I am going to talk to the board about getting a TIN for checking purposes. Do we use this same TIN to file 1099s at the end of the year?
Thanks for all of your great information!

Debi M in SC

Debi,
Since your surplus is from supply fees and not general membership or tuition fees, I don’t see a problem doing a refund. But giving refunds makes more work for you as treasurer!

The prohibition against distributing a surplus is to avoid individual benefit or what the IRS calls “private benefit or inurement”. The purpose of a nonprofit (even an unincorporated nonprofit, such as yours) is to accomplish a mission, not to accumulate a profit. Naturally, the IRS forbids a group of people from setting up a nonprofit to make a profit, and then to split the surplus at the end of the year. That would be tax avoidance and abuse of nonprofit status.

I usually encourage homeschool groups to have a small surplus for emergencies, large purchases, future expenses, or to make appreciation gifts to volunteers or the place where you meet.

It’s a good idea to get a EIN (Employer Identification number) instead of using the board member’s SSN. You would use the EIN and the Co-op’s name on any 1099MISC forms you file.

I hope that heps!

Carol Topp, CPA