6 tips on handling taxes for household employees
A hefty tax bill is a possibility for anyone who pays a nanny, housekeeper, gardener or other household employee enough in annual wages to trigger a bevy of requirements under tax laws.
This year, that financial threshold is $1,800, and it makes the person who hired the household employee responsible for paying that worker's federal and state payroll taxes, just like any other business owner. They also must reflect in their own annual tax return that they had a household employee.
“People think if they pay this person in cash, they don't have to report it, and the recipient doesn't have to pick it up as income,” says Cindy Hockenberry, manager of research for the National Association of Tax Professionals. “But there are taxes due on that, and the [Internal Revenue Service] wants their taxes.”
Here are six tips on how to make sure you're not running afoul of the tax man when hiring household help:
• Sort out: Independent contractor or household employee? Whether you're on the hook for your nanny or maid's payroll taxes begins with determining if he or she meets the IRS definition of a household employee or an independent contractor.
The IRS defines a household employee as someone hired to do work in or around a home, at the direction and control of the person who lives in the home. Meaning: You tell them what to do and how to do it and perhaps provide the supplies.
So who wouldn't be a household employee? If workers can control how they do the work, are self-employed or bring their own tools, they're likely to be considered independent contractors.
• Determine which taxes you are expected to pay: If your nanny or other hire meets the household employee standard, it all comes down to whether you pay the person cash wages of $1,800 or more.
If that's the case, you are required to pay 15.3 percent of their wages in Social Security and Medicare taxes.
Be aware that you also could be on the hook for federal and state unemployment taxes.
• Decide early how you're going to pay: The IRS gives you the option to withhold your employees' share of their Medicare and Social Security taxes from their paycheck or to elect to pay their share yourself.
• Verify an employee's legal status: The IRS requires that employers and their hires complete an employment eligibility verification form, dubbed I-9, before the end of the employee's first day of work.
The form requires that non-U.S. citizens provide information backing up their legal employment status and that the employer examine the information against a list of acceptable identification documents.
• Keep solid records: It's important to keep accurate records of all wages and federal and state taxes you pay or withhold on behalf of your employee.
• Get help: Instead of dealing with the intricacies of the U.S. tax code, you can pay an accountant or one of the many companies that cater to handling payroll and tax concerns for domestic employers.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Financial firms don’t connect with millennials, study finds
- Douglas Laboratories sells Klean Athlete, products free from banned substances
- Experts say economic edge at stake with R&D tax credits
- Regional airlines in tough position
- Risk and compliance specialists in demand
- Missouri barrel sales thrive with bourbon thirst
- Theme parks add premium events
- Printz: Investor optimism must survive for wealth creation
- Alcoa shifts retirees to private health insurance exchanges
- Has Apple’s watch missed the party?
- General Motors preps cars with auto-pilot