Tax Policy

Are You Properly Paying Your Household Employees?

Do you have household employees such as a nanny, housekeeper, or private gardener/landscaper?

Hiring household employees can make life so much easier. Whether you hired someone for housekeeping, cooking, elder care, secretarial work, or any other need around the house; having a household employee can be a life saver. Although having a household employee might make your life easier it can also make your taxes slightly more complicated.

Paying your housekeeper, nanny, or cook isn’t as easy as writing a check or giving them cash. There are several rules when it comes to paying household employees so you want to make sure you’re filing the right forms and paying the correct tax.

This helpful guide will walk you through the basics and show you how to properly pay household employees.

Definition of a Household Employees

Household employees may include the following:

  • Housekeepers/Maids
  • Babysitters
  • Gardeners
  • Private Chefs/Cooks
  • Others who work in or around your private residence as your employee

Plumbers, contractors, or general repairmen who provide their services as independent contractors are not considered household employees. Household workers are considered employees if you control not only the work they do but also how they do it.

For example, if you hire a nanny who is going to pick-up your kids up from school and do light cleaning around the home then odds are they are your employee. If you hire a handyman to fix your sink or a landscaping company to mow your lawn, they are not a household employee.

To get the best determination of whether or not the household worker is in-fact your employee consult with a tax advisor.

FICA Taxes

If you pay cash wages in excess of $2,100 to any one household employee in 2018, you must withhold 6.2% of their wages for social security tax and 1.45% of their wages for Medicare taxes (for a total of 7.65%). You will also pay your share of the FICA taxes, which is also 7.65%, and remit these amounts to the IRS.

Federal Income Tax

As a general rule, you’re not required to withhold federal income tax from wages you pay to a household employee. However, your employee might ask you to withhold federal income tax. Although this is not required, if you agree to withhold federal income tax you’ll need a completed Form W-4 from the employee.

FUTA Taxes

If you paid cash wages in excess of $1,000 to a household employee during any calendar quarter, you generally must pay federal unemployment tax (FUTA) on the first $7,000 of cash wages you pay to each household employee.

Depending on your state, you may also pay amounts to state unemployment programs and may be eligible for a credit against your FUTA tax liability.

Form W-2

If you were required to withhold and pay social security and Medicare taxes, or if you voluntarily withheld federal income tax, you’ll need to complete Form W-2 for each employee and Form W-3.

Schedule H (Form 1040)

If any of the above applies to your household employee (i.e. you pay wages subject to FICA tax, FUTA tax, or if you withhold federal income tax from your employee’s wages) you’ll need to file a Form 1040, Schedule H, Household Employment Taxes and attach it to your individual income tax return (Form 1040).

This form calculates the employer and employee portion of employment tax that must be paid to the IRS.

Estimated Taxes

If you file Schedule H and must remit tax for your household employee then you can avoid owing taxes with your return. If you’re employed, you can simply ask your employer to withhold more federal income tax from your paycheck during the year. You can also make estimated tax payments to the IRS during the year using Form 1040-ES, Estimated Tax for Individuals.

It’s important to note that there may be tax penalties associated with not paying the proper tax for your employees during the year.

Consult With a Tax Advisor

Chances are you hired a household employee to save you time and effort. Properly paying and reporting payments to a household employee can be cumbersome and result in taxpayer penalties. Luckily, your trusted tax advisor can help you file all the necessary forms and make sure you stay compliant when it comes to properly paying your household employee.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

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