Responsibilities When Employing Household Help
brochure provides a summary of the requirements faced by
taxpayers who employ household help. You should always discuss
with your CPA your situation regarding hiring household
workers before making any decisions concerning this issue.
"nanny tax" problems became a national issue in
1993, federal tax legislation was enacted in 1994 to make
compliance with federal tax laws for household help easier.
As a result, several of the reporting requirements have
been shifted from different forms to a taxpayer’s 1040.
Many taxpayers are now becoming aware that they have tax
filing obligations to fulfill when they hire regular household
taxes" is a term used to describe the various tax requirements
that must be followed by some taxpayers who employ domestic
help. Wealthy taxpayers employing live-in household help
are not the only people who find themselves owing nanny
taxes and needing to complete various forms related to the
domestic employment. A taxpayer who hires a daily afternoon
baby-sitter or a weekly maid may have established an employer-employee
relationship and may owe social security and medicare, federal
and state withholding, and unemployment taxes and employer’s
share of payroll taxes, and have to complete various forms
required of employers of domestic help.
brochure will help you understand the circumstances under
which household employers are required to comply with the
nanny tax rules, as well as the specific details of how
to follow the tax obligations.
THE WORKER AN EMPLOYEE?
a taxpayer needs to determine whether an employee-employer
relationship exists, or whether the worker is considered
an independent contractor or controlled by an agency. Employee
status is determined with no regard to whether the work
is part-time or full-time. If an individual is controlling
what work is to be done and how it is to be done then that
person is considered an employer. Taxpayers, who are not
employers of the individuals they hire, do not withold employee
taxes or pay employer’s payroll taxes. There are numerous
other factors that are to be considered when determining
an employer-employee relationship. To become more informed
on this subject contact this firm and request the brochure
titled, "Independent Contractor or Employees."
OBLIGATIONS OF HIRING A HOUSEHOLD EMPLOYEE
an employer-employee relationship exists, the employer needs
to understand the tax requirements for employing a domestic
worker. If an individual is hired for a small, one-time
job or for sporadic work, employers are generally not required
to comply with the following requirements for domestic workers
hired for recurring and consistent service.
hiring a household help employee the employer must verify
that the individual is eligible to work in the United States.
The employee and the employer must both complete the form
I-9, Employment Eligibility Verification. The employer will
need to review certain documentation such as birth certificate,
driver’s license, or passport to confirm eligibility.
Identification Number (EIN)
employers, including employers of household help, need to
have an EIN. An EIN can be obtained from the IRS after completing
Security and Medicare Taxes
employer must withhold 6.2% of the employee’s wages for
social security and 1.45% for medicare taxes. The employer
will have to match those amounts and pay the employer share
of the tax after reporting it on Schedule H of the employer’s
Form 1040. Employers of a household worker may want to increase
withholdings or estimated tax payments to avoid having a
large amount of tax due when their 1040 is filed. Estimated
tax penalties are calculated by including employment taxes.
The payment or employers taxes is not an itemized deduction.
No security or medicare taxes are withheld if the household
employee is paid less than $1,000 in annual wages. If the
household employee is under the age of 18 for any portion
of the calendar year then they also are exempt from having
wages taxed for social security and medicare.
employer is not required to withhold federal income tax
from a household employee’s wages. If the employee requests
that federal income tax be witheld then the employer may
withhold it if they agree. If the federal income taxes are
withheld Form W-4 must be completed. Domestic employee benefits
such as food, clothing, and lodging are only taxable for
federal income taxes. Withheld federal taxes are due at
the end of the year and reported on the household employer’s
Schedule H. Form W-2 must be completed at the end of the
year and sent to the Social Security Administration. The
household employee must be given his or her copy of Form
employer must pay federal unemployment tax if the employee
earned $1,000 or more per quarter of the current year or
the prior year, This is also reported on Schedule H.
requires that employers register using Form R-1 which will
facilitate monthly filing of Form VA-5 to pay income
tax withheld. Employers must also file quarterly reports
with the Virginia Employment Commission after registering
Income Credit Requirements
Earned Income Credit (EIC) is a refundable tax credit for
less then $10,580 a year. If a household employee who is
eligible for the EIC has social security, medicare, and
income tax withholdings and completes form W-5, advance
payments of the EIC must be made by the employer from the
withheld taxes if the employee requests so.
and criminal penalties could apply if a household employer
fails to meet employment tax obligations. Criminal convictions
usually result from mostly intentional, rather than negligent,
violations of the domestic employee tax laws. However, household
employers who are negligent in failing to comply with tax
requirements for employees may be subject to civil penalties
as well as interest on unpaid taxes.