Do you have a babysitter, caretaker, yard worker, or any other person that does work in and around your house? If you have authority over the work they do and how they do it, they are your household employees. Workers that provide their services as independent contractors should not be considered your employees. To learn more about worker classification you can refer to our earlier article on “Worker Classification and Why It Matters.”
It does not matter if you hire someone part-time or full-time and whether you choose to pay hourly or by the job. If you determine you have a household employee and you paid cash wages of at least $2,300 (2021), you are required to withhold and pay social security taxes (6.2%) and Medicare taxes (1.45%). The employer will also need to pay their portion of social security and Medicare, or 7.65%, to equal a total of 15.3%. If you withhold the taxes, and at the end of the year you end up paying less than $2,300 in wages, you must reimburse the employee; on the other hand, if you do not withhold enough, you should increase the withholding from a later payment. You can choose to pay the employee share of the social security and Medicare taxes; however, you will still report them on the W-2.
If you paid at least $1,000 in wages in any quarter of the current calendar year or previous year, you are required to pay federal unemployment tax of 6% of the first $7,000.
Federal income tax withholding is not required for a household employee. You only need to withhold if the employee asks, and you agree. Then the employee should fill out Form W-4.
Noncash items, such as food, clothing, and lodging, are not considered wages and therefore are not subject to taxes.
You are required to file a W-2, Wage and Tax Statement for each applicable employee, and a W-3, Transmittal of Wage and Tax Statements by January 31st of the following year. You will need the following information to complete these forms:
- Employee’s social Security Number
- Employee’s eligibility to work in the US
- Determine employee’s Withholding
- Employer identification number (EIN)
You must provide a copy of the W-2 to your employee(s).
You are required to report employment taxes on Schedule H, Household Employment Taxes, with your personal 1040. You can pay all employment taxes at once or you can pay them in installments with Form 1040-ES.
ADKF is here to help to make sure you and your household employees are reporting and paying taxes correctly.