Tax Tips When Hiring Household Employees
If you hire people to work in your home you may be legally required to pay their payroll taxes. The IRS defines a household employee as someone who is hired to work in or around your home under your direction. Some examples are:
- Babysitters
- Caretakers
- Cleaning people
- Health aides
- Housekeepers
- Nannies
- Private nurses
The person is considered to be an employee whether the work is full-time or part-time; whether you pay the worker on an hourly, daily, or weekly basis; and whether you hired the person through an agency or put an ad out on your own.
Important Things to Consider When Hiring a Household Employee
Decide How You’re Going to Pay
The IRS allows you to withhold your employees’ share of their Medicare and Social Security taxes from their paychecks. You also have the option to pay your share of their Medicare and Social Security taxes yourself. For example, if you hire a nanny for the federal minimum wage of $7.25 an hour twice a week for three hours that’s $43.50 per week. If the nanny works for one year, that’s $2,262 – triggering the requirement by law to pay the nanny’s payroll taxes.
Depending on much you need to shell out during tax season, it may be best to withhold their payroll taxes, especially if intend to increase your employees’ hours and wages significantly.
Verify the Employee’s Legal Status
It’s imperative to make sure the people you hire can legally work in the U.S. The IRS takes this seriously and requires that employers and their hires complete an Employment Eligibility Verification Form, also known as an I-9. If your household employee is not a U.S. citizen, they must provide information on the form to back up their legal employment status.
Required Employer Identification Number for Employer
As a household employer, the IRS requires that you have an Employer Identification Number (EIN), which is different from your Social Security Number. Obtaining an EIN is a simple process of completing the Application for Employer Identification Number form, also known as the federal SS-4 form.
Keep Records
It’s essential that you keep accurate records of all wages and federal and state taxes you pay or withhold on behalf of your household employee. These records will come in handy when tax season comes around.
Such records to keep for each household employee include:
- Cash and non-cash wages
- Federal income tax, Social Security tax, and/or employee Medicare tax that you paid or withheld for your employee
- State employment taxes that you withheld
- Copies of Schedule H (household employment taxes paid)
- Form W-2 (the worker’s annual wages)
Get Help from an Accountant
Having household employees brings important tax responsibilities with a lot of paperwork. U.S. tax codes can be complicated to follow and keep up with. An accountant can help you understand the obligations you must meet for specific tax requirements. JTS Associates CPAs, P.C. is here to help in any way we can. Contact us at (516) 877-5900.
