Let's say you are looking to hire a nanny to come over a couple of nights a week for three hours. If your employee is paid $1,000 or more in any calendar quarter, then you must also pay federal unemployment tax of 6 percent of their annual wages.ĭecide early on how you're going to pay: The IRS gives you the option to withhold your employees' share of their medicare and social security taxes from their paycheck, or to elect to pay their share yourself. The employer covers half of those taxes (6.2 percent for Social Security and 1.45 percent for Medicare) and can withhold the other half from the employee's paycheck. Who wouldn't be a household employee? If workers can control how they do the work, are self-employed or bring their own tools, they're likely to be considered independent contractors.ĭetermine which taxes you must pay: If your nanny or other hire meets the household employee standard, and you pay that person cash wages of $1,800 or more, you are required to pay 15.3 percent of their wages in Social Security and Medicare taxes. In the case of a nanny: "Any parent would have an almost impossible case to make that they don't have the right to control the work that's being done in their private home with their child," says Kathleen Webb, co-founder of HomeWork Solutions, which provides payroll and tax services to people with household employees.
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Meaning, you tell them what to do and how to do it, and perhaps provide the supplies - for instance, if you hire someone to mow your yard and they use your lawn equipment. The IRS defines a household employee as someone hired to do work in or around a home, at the direction and control of the person who lives in the home. "But there are taxes due on that, and the IRS wants their taxes." Here are some tips on how to make sure you're not running afoul of the tax man when hiring household help:Ĭontractor or employee?: Whether you're on the hook for your nanny or maid's payroll taxes begins with determining if he or she meets the IRS' definition of a household employee, rather than an independent contractor. "People think if they pay this person in cash, they don't have to report it, and the recipient doesn't have to pick it up as income," says Cindy Hockenberry, manager of research for the National Association of Tax Professionals. This year, that financial threshold is $1,800, and it makes the person who hired the employee responsible for paying that worker's federal and state payroll taxes, just like any other business owner. Yet a hefty tax bill is a possibility for anyone who pays a nanny, housekeeper, gardener or other household employee enough in annual wages to trigger a bevy of requirements under tax laws.
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