January 5, 2024
In self-direction you are the employer. (Self-direction means that people who need support and services have the freedom to hire their own workers) Participants in self-direction programs are setting up a business when they hire their own employees. Setting up a business includes applying for an Employer Identification Number (EIN), registering with the IRS, and identifying an Employer of Record (EOR) for your business.
What does the EOR do?
The EOR is the “legal employer” of your employees. This means that all business and tax paperwork is completed with their name. They have control over the budget and employment decisions. It also means that they have authority over things like hiring, firing, and training employees.
The EOR for self-directed business arrangement should be the Home Care Service Recipient (HCSR), or the person who is receiving services. We’ll call this person the participant. In cases where the participant cannot perform some or all of their employer duties, they can choose a representative to assist them and still be the EOR.
Am I the Home Care Service Recipient (HCSR)?
Participants in self-directed arrangements receive a special designation as an “HCSR” from the IRS. An HCSR is any individual who “receives home care services,” including personal care attendant services, “while enrolled in a program administered by a federal, state, or local government agency that provides funds to pay for home care services for that individual.”
The special rules. Why the participant being the EOR is important to the IRS.
As an HCSR, special rules apply to your employment situation that give you added protection when working with a 3504(c) agent. As your fiscal/employer agent (sometimes called a Fiscal Intermediary or Financial Management Service), we serve as a 3504(c) agent.
All that that technical language means that GT Independence is responsible for withholding, reporting, and paying federal employment taxes related to your home care services. This also means that GT is jointly responsible for any negative actions, like penalties, related to this responsibility. The IRS says that in most cases, “an employer cannot appoint a section 3504 agent to report, deposit, and pay taxes… unless the employer is a home care service recipient.”
In plain language, this means that the participant must be the EOR to work with GT Independence. And GT Independence helps protect you from anything negative that could happen relating to your position as the EOR. So all-in all, to make sure that you receive these protections for your home care services, the HCSR, or the participant, needs to be the EOR.
Participant as the EOR: Frequently Asked Questions
Because this involves the IRS, there’s a lot of technical language involved in the reason participants should be the EOR. Let’s break things down a bit further.
What is a 3504(c) agent?
Internal Revenue Code (IRC) Section 3504(c) allows an employer to appoint an agent. This agent can be a payroll service provider or a Fiscal Intermediary (FI). The agent takes on certain federal employment tax responsibilities. When a 3504(c) agent gets appointed for a person receiving services, special rules apply. Section 3504(c) calls a person receiving services a home care service recipient.
To appoint a 3504(c) agent, complete IRS Form 2678, Employer/Payer Appointment of Agent. You must complete this form during your enrollment.
Shae, a person receiving services, enrolls with GT Independence. During her enrollment, she appoints GT as her 3504(c) agent. Now it’s GT’s responsibility to take care of some tax requirements for Shae and her employees. This means taking care of withholding, reporting, and paying federal income tax. It also includes taking care of unemployment, social security, and Medicare taxes.
Can a minor have a Federal Employment Identification Number (FEIN)?
Yes, a minor can have a Federal Employer Identification Number (FEIN) in some circumstances. A FEIN is a nine-digit number issued by the Internal Revenue Service (IRS). It is often used by businesses for tax purposes.
In most cases, a parent or legal guardian must provide consent before a minor can get a FEIN. The parent or guardian may also need to sign the application on behalf of the minor. During enrollment, make sure to provide documentation of the legal relationship to GT.
Jace is 16, but he wants to make sure the FEIN is in his name, so he doesn’t have to get a new FEIN number once he comes of age. Jace’s parents support his decision and sign the application on his behalf. They also make sure to provide documentation of their relationship to GT during Jace’s enrollment.
Can someone who has a guardian have a Federal Employment Identification Number (FEIN)?
Yes. A person receiving services (who has a legal guardian) can apply for a FEIN. This is because a guardian has the legal authority to handle financial and business matters for the person they represent. Just make sure that you’re applying for a FEIN for business or tax-related purposes.
Sometimes the person receiving services can’t sign for themselves. In this case, their legal guardian must submit legal documentation. These documents must show their authority to act on behalf of the person receiving services. The documents can be court orders or letters of guardianship.
Kayla has a guardian who needs to sign on her behalf. Because of the flexibilities, she can still be the EOR when her guardian signs. The guardian just needs to submit documentation of the relationship before they can sign on Kayla’s behalf.
Can a person unable to perform employer-related duties still be an Employer of Record (EOR)?
Yes. A person who needs support with employer duties can choose a representative to help them out. The representative (or guardian, in some cases) works to support the person receiving services. But the actual employer (EOR) is still the program participant.
Carla doesn’t want to handle all the employer duties on her own. So she appoints her son-inlaw James as her representative. James works hard to support Karla by hiring and scheduling her employees. He also takes care of any employee problems. But Carla is still the EOR (Employer of Record) and has the final say over decisions.
Can a legally responsible person (Guardian, POA, Parent, Conservator, etc) manage the day-to-day business functions including hiring, managing, scheduling, payroll etc. on behalf of an employer?
Yes, an employer can appoint a legally responsible person to manage employees and other decisions. This is a common practice in businesses. Day-to-day management is often given to specific people or teams.
What if someone else was the EOR before?
This is fine. During your enrollment, GT Independence will complete new paperwork to create a FEIN in your name.
Building Independence With Self-Direction
You’re not alone in your self-direction journey, and being the boss is not a solo job. If being in charge sounds overwhelming, work with your FI or FMS (such as GT Independence), your trusted representative, and your case manager to balance your responsibilities. We’re here to help you every step of the way.