By Cathy Peters
Do you have household help? A nanny or babysitter? A cleaning person or domestic worker? A health aide or private nurse? If you have any of these working for you in your home and you control the work that is done and how it is accomplished, you have a household employee and you are a household employer.
There are certain tax responsibilities that you have as a household employer if you pay wages above a threshold amount. The threshold for 2014 is $1,900 and it makes the person who hired the household employee responsible for paying payroll taxes on that worker, just like any other business owner.
Some people think if they pay the person in cash, they don’t have to report it, and the recipient doesn’t have to pick it up as income. This is not the case. Regardless of the method of payment, payroll taxes are due if you meet the requirements of a household employer and pay wages above the threshold amount.
What taxes are you expected to pay?
You are required to pay 15.3% of their wages in Social Security and Medicare taxes. The employer pays half of those taxes and can withhold the other half from the employee’s paycheck or the employer can pay all the taxes and include the employee’s share as income on their W-2. If your employee is paid $1,000 or more in any calendar quarter, you also must pay Federal and State unemployment taxes.
How do you pay these taxes?
Medicare and Social Security taxes, Federal Unemployment tax and any Federal income tax withholding are paid with your personal Federal income tax return by completing Schedule H. State unemployment taxes are paid quarterly with a state unemployment tax return.
What else do you need to know?
Obtain a completed W-4 from your employee and also complete a Form I-9 to determine their legal status and eligibility to work. Obtain an employer identification number (EIN) from the IRS and a state reporting number from your state. Keep accurate records of the wages you paid during the year. Issue a W-2 to your employee at the end of the year. Determine if you need to make estimated tax payments to cover the employment taxes that you will owe with your individual Federal tax return.
Additional information may be obtained from IRS Publication 926, Household Employer’s Tax Guide, on the IRS.gov website.