Taxes for Household Employers

If you employ outside help for household work such as child-care, nursing or gardening, you must determine if that worker is an employee or a self-employed contractor. The employer has different tax obligations for employees and self-employed workers.

Employees vs. Self-Employed Workers

A household worker is considered your employee if you control what work is done and how it is done. For example, if you hired a part-time nanny and she visits your home to provide services, follows your instructions on how the child must be cared for, and works hours that you determine, she is your employee.

On the other hand, if a worker controls how the work is done, the worker is considered to be a self-employed worker, rather than an employee. For example, if you hire a gardener and the gardener brings his own equipment and helpers, the gardener is self-employed because he directs how the work is done.

How a worker is paid, whether hourly, weekly, or by work completed; their schedule, full-time or part-time; or how they are hired, through an agency or an association, does not affect their tax status.

Workers who are Employees

A worker's employment status is categorized by who controls how the work is done. Common household employees include:

  • Babysitters, nannies
  • Caretakers
  • House cleaning workers
  • Domestic workers
  • Drivers
  • Health aides
  • Housekeepers, maids
  • Private nurses

Social Security and Medicare Taxes for Household Employees

Employers are required to withhold Social Security and Medicare taxes from the wages they pay their household employees. However, these requirements do not extend to certain employees. These employees are:

  • Your spouse
  • Your child under 21 years of age
  • Your parents (unless they qualify for an exception)
  • An employee under 18 years of age at any time during the year (only if the work is not the employee's principal occupation and is done part-time along with a principal activity such as studying in an educational institution).

Employers are still required to withhold taxes even if wages are paid in cash. The amount withheld is 7.65% of each wage payment. Additional Medicare Tax should be withheld if the wages you pay the worker exceeds a certain threshold.

Eligibility Requirements for Household Employees

Before you hire a household employee, you must first check whether the employee is eligible to work in the United States or not. In order to be eligible, the employee must have a Social Security Number.

To verify the eligibility of an employee, you may use Form I-9 Employment Eligibility Verification from the US Citizenship and Immigration Services (USCIS) website. Form I-9 will help you to verify the identity and employment authorization of your employee. You should keep this form in your tax records.

You may use Schedule H (Form 1040) for figuring your household employment taxes. Form W-2 is used for reporting wages paid to your employees.

Whether you hire an employee or a self-employed worker, you need to know their Social Security Number. Consulting a tax preparer is advisable if you have many employees or self-employed workers working for you.

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