CARL WATTS & ASSOCIATES
January 31, 2011
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Washington DC
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tel/fax 202 350-9002 |
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Household work is work done in or around your home by people like babysitters, nurses, nannies, caretakers, housekeepers, gardeners, etc.
When dealing with paid work in your household, there’s an important question that probably comes to your mind, are they considered employees, or independent contractors, or another kind of paid services providers? As usual, let us once again rely on the IRS to offer a suitable answer to your question.  |
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If the person you hire in your household does the work you tell them to do, the way you want it to be done, and with tools that you provide, then that person is your employee.
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Further more, you are an employer if you pay that person $1,700 or more in wages for the year, and if you pay all the persons working in your household $1,000 or more in any calendar quarter of the year.
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Nevertheless, if you pay that money to your spouse, your parent, your child who’s younger than 21, or any student who’s younger than 18, then that person is not considered your household employee.
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If the worker you hire is the one who controls how the work is done, uses personal tools and offers services to the general public, then that person is not your employee but self-employed.
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If someone performs child care services for you in their own home, that person is not your employee. Or if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.
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So now if you know you’re a household employer, what’s next?
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First of all, you need to register with the IRS for an employer identification number (EIN), which is a nine-digit number that the IRS uses to identify the tax accounts of employers. You can apply for an EIN by mail by completing Form SS-4, or you can apply by phone, or online on IRS website.
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Then you and your employee must complete the U.S. Citizenship and Immigration Services (USCIS) form I-9, Employment Eligibility Verification. Form I-9 (which you can download from USCIS website) is meant to establish the identity and employment eligibility of your employee. You don’t have to submit this form to the IRS or the USCIS, just keep it available with your other records.
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Now you can start thinking about paychecks, withholdings and taxes you need to pay.
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| Paycheck & Withholdings |
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You are not required to withhold federal income taxes from your household employee paycheck, nevertheless it would be to your employee’s advantage, so that they don’t need to make quarterly estimated tax payments. In order to know exactly how much to withhold, you should have your employee complete and sign a Form W-4 Employee Withholding Allowance Certificate which summarizes the employee filing status and how many exemptions they qualify for. (The form is easily obtained from the IRS.)
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Household Employees
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Concerning Social Security and Medicare taxes, both you and your employee are responsible for paying them, but some employers decide to pay the whole amount themselves instead of just half. Either way, you’re responsible for the employee paying their share of these taxes, so these should be withhold from their salaries.
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As for State taxes, you have to decide if you are going to withhold that too or not.
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Taxes you have to pay
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Besides having to pay half of Social Security and Medicare taxes (which is 7.65% for 2010), you will have to pay Federal Unemployment (FUTA) Tax which is normally 6.2% but may be reduced to a net tax of 0.8% if you pay all the required contributions to your state unemployment fund. Of course state requirements differ from state to state.
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If you have to pay state unemployment tax and decide to withhold state taxes, you will have to send regular payments and reports to the state tax department. Sending reports and payments on due time will save you from penalties and interest owed for late payments.
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| Form W-2 |
As an employer, you have to fill out forms W-2 for your household employees and send them their copies by January 31. Copies A of Form W-2, along with Form W-3 (which is a summary of withholdings for all your employees) have to be send to the Social Security Administration by February 28.
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Schedule H
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Schedule H is used to calculate and report Social Security and Medicare taxes, federal income taxes withheld (if any) and federal unemployment taxes for your household employees. Whether you file an income tax return or not, you should still file a Schedule H (Household Employment Taxes) with the IRS.
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Make sure you keep copies and records of all forms and payments.
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There are many online tools and websites where you can find help to navigate through all the forms and calculations you need to make.
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Of course, professional help is what we always recommend, in this case at least to get you started as a household employee.
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