Accounting for household employment taxes
diamondcpas
January 9, 2020

If you employ household workers such as nannies, caretakers, chefs, maids, private nurses and others, you may need to withhold payroll taxes.

As an employer, you are not required to withhold federal income tax from your employees’ pay. The IRS does require that you withhold a percentage of wages for Social Security and Medicare taxes for any worker you pay more than $2,100 per year.

Additionally, if you pay a household worker more than $1,000 in any quarter, you need to pay federal unemployment tax.  Depending on what state you live in, you may be responsible for paying state unemployment taxes and worker’s compensation, according to the IRS. You’ll also need to issue each employee a W-2 form by the end of January of each year and ensure each is eligible to work in the U.S. You should have your employees complete a I-9 form, which is used to prove citizenship or otherwise prove the employee’s ability to legally work in the country.

Exceptions to these regulations typically include family members and teens under the age of 18 at any time during the calendar year

Keep in mind, however, that if you hire a college student who turned 18 before the beginning of the year to babysit over the summer; a retired neighbor to do yard work or a non-family member over the age of 18 to care for your aging parent, you are required to withhold payroll taxes, according to the IRS.

Rather than hiring household workers directly, some taxpayers find it easier to contract with an agency that employs the workers. In this arrangement the agency handles all employment tax matters. Additionally, the agency may pre-screen candidates, bond their employees and provide substitute coverage when the regular worker is absent.

While none of the withholding requirements for household workers are new, you may wish to consult the IRS website for the specific amounts and percentages to withhold.  Refer to  www.irs.gove/taxtopics/tc756  “Do you need to pay employment taxes?” for further information.

Also, if you employ household workers, you should verify that your homeowner’s insurance policy covers employees in your home. As always, it’s recommended that you consult a qualified professional to ensure you are in compliance and avoid penalties. Contact one of our tax advisors to discuss any questions or concerns you may have.

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