Courtesy of Kathy Webb, HomeWork Solutions, Inc.
CLASSIFICATION IS THE KEY
You become a household employer when you hire an individual to perform duties and provide services under your direction in your private home. Generally, these workers are your employees, not independent contractors. Failure to properly classify the worker and make the appropriate employment tax filings and payments is considered tax fraud by the IRS. HomeWork Solutions is here to help.
PAYROLL TAX RESPONSIBILITIES
You are responsible for employment taxes when you pay a household worker who is 18 years or older $2000 or more in the calendar year 2016.
Social Security and Medicare Taxes
The household employer is responsible for the payment of all Social Security and Medicare taxes to the IRS. You may choose to either collect your employee’s taxes via payroll deductions or fund these taxes yourself.
You will make contributions to the IRS and your state to fund unemployment and worker re-training programs.
Federal and state income taxes are ultimately the responsibility of the household employee; however, it is a best practice to deduct these taxes from your full time employee’s wages to help them avoid owing large sums when they file their annual income tax returns.
You have both Federal and State tax filing responsibilities. Federal employment taxes are reconciled with the household employer’s annual Federal Income tax return. Your state will require quarterly unemployment tax filings, as well as reports and remittance of state income taxes withheld, if applicable. Employee wages are reported to the Social Security Administration. Your employee is due a W-2 form in January.
The Fair Labor Standards Act (FLSA) establishes that household workers such as a nanny, housekeeper or senior caregiver are hourly wage employees, and extends minimum wage and overtime pay protections to them. While most benefits such as health insurance contributions and paid time off are negotiable, your state or locality may impose minimum requirements that you must comply with. State specific household payroll and labor law requirements can be found here.