Household employees mean more tax tasks for employers
Monday, June 27, 2022
I'm later than usual posting today because the hubby and I finally cleaned a room that we've ignored for way too long. That meant it took longer than if we'd just dusted a bit more regularly.
That's why I'm thinking of hiring a cleaning person. OK, I probably won't. I do think about it every time we do some major cleaning job, since I find housekeeping a total drag. Just ask the hubby.
But I'm not really one for people I don't really know being in my house. Plus, if we do hire cleaning help, we could face some added tax tasks.
More than nanny taxes: You've probably heard this. And you've probably heard it called the nanny tax. But it applies to more than youngsters' caretakers.
The Internal Revenue Service says, "Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee." Let me also add senior caregiver or personal assistant to this list.
A key factor in differentiating a household employee from repairmen, plumbers, and similar people who work on or in your home, is that this second group typically provide their services as independent contractors, not as your employees. You are just one of several customers for whom they work.
That's also the case for some household workers, especially housekeepers. But questions arise because often you (OK, me if I do decide to hire a housekeeper), the owner of the home that needs cleaning, has some specifications on how the job is to be done.
Notably, you control not only the work they do, but also how they do it. And that makes them your household employee.
Taxes that apply: In these cases, you could be responsible for withholding taxes — Federal Insurance Contributions Act's (FICA) Social Security and Medicare taxes, as well as federal and, if applicable, state income taxes — from the pay you provide your household employee.
You also could be required to pay the employer portion of the FICA taxes, as well as federal and state unemployment insurance.
A quick refresher on the FICA taxes, which most of us are familiar with thanks to having worked at some point for wages.
The total FICA amount is 15.3 percent of your earnings, with 12.4 percent going to Social Security and 2.9 percent to Medicare. Each employee and employer pay half, or 6.2 percent for Social Security and 1.45 percent to Medicare.
Payment amounts count: The nanny tax generally is triggered when you pay an applicable worker a certain amount.
For the 2022 tax year, that's $2,400 or more to a household employee in the calendar year, or $1,000 or more in a calendar quarter for unemployment insurance tax purposes.
IRS Publication 926 discusses the taxes involved in hiring a household employee.
As for you state tax obligations, check with your state's tax department. You also can get an overview at Care.com's state nanny tax directory.
Work control key: Again, let me emphasize the control component of the job a household employee does.
In most cases, the employee comes to your house when you say they should and they follow specific instructions regarding tasks. For example, the housekeeper must use a specific product that you provide to clean your porcelain collectibles in that special living room cabinet.
Guidance on how to do the job tends to be even more explicit where children's nannies or caregivers for elderly family members are involved. That's why, say many tax experts, nannies generally are not considered contractors.
Also note that the IRS, U.S. Department of Labor, and most states have signed a formal Memorandum of Understanding to share information between agencies in order to combat worker misclassification.
If you misclassify your nanny, or other household help, as a contractor instead of employee, the IRS will look at that incorrect designation as tax evasion. So will, as noted by the info sharing agreement, your state tax collector if you live in one with state income taxes.
And you'll likely blow any chance of every holding a presidentially appointed post.
Not that I ever expect to have a high-powered White House job to worry about, but personally, if I do decide to hire a housekeeper, I'll go with one of the cleaning services and let that company handle all the taxes!
You also might find these items of interest:
- Nanny tax trouble for Trump budget office nominee
- Employee or contractor classifications and other employment tax tips for businesses
- Employee or contractor? The IRS has some guidelines on when each work status applies
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