In this article, we focus on household employees and the taxes associated with them. If you employ someone who works in your home, the IRS may or may not subject you to household employment taxes. This “nanny tax” may also refer to a nurse, caregiver, or even a gardener. Question is, does your employee fall under this category? Which forms do you need to file for your household employees? Is your maid, housekeeper, or babysitter covered by the rules?
This article is the first half of this guide and it will focus on defining who these “household employees” really are according to the IRS. The next article will tell you more about the federal employment taxes you need to pay. In addition, it will also explain the rules for determining, paying, and reporting the variety of taxes associated with having a household employee.
Do All Employers Nee to Pay?
These days, many employers disregard the need to pay taxes on household employees. They do so at the risk of stiff tax penalties. As you will see in the next article, these rules are quite complex and hence, we would recommend professional tax guidance. A basic familiarity with these rules will make it easier to work with your tax advisor. It will also save you time, reduce tax costs, and avoid tax penalties and interest charges.
Who are Household Employees?
The “nanny tax” applies to you only if you pay someone for household work and that worker is your employee. A household employee is someone who does work in or around your home. Examples of household employees include babysitters, nannies, health aides, private nurses, and maids. In addition, caretakers, yard workers, and similar domestic workers are also considered household employees.
Household workers are your employees if you can control not only what the work is, but how to perform it. The working hours have nothing to do with being an employee. He or she can work either part-time or full-time and still be covered by the nanny tax. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.
On the other hand, “self-employed” workers exert full control of the nature of their work by themselves. A self-employed worker also usually provides his or her own tools and offers services to the general public in an independent business. If an agency provides the worker and controls the nature of his work, then that worker is not your employee.
The Next Step
Now you can tell whether your worker is really a household employee, as defined by the IRS. If you are still not sure, you can consult with a CPA to find out exactly. But if you do know now, what then are the taxes you need to pay? Stick around to find out!