You may have a household employee, but are you a household employer? The IRS has some questions about that.
Paying household taxes
If you are a household employer, you must withhold federal income tax from your employee’s wages. You may also have to pay Social Security and Medicare taxes in addition to withholding income taxes. In addition, if an employee works for more than one household employer during the year, he or she should file a separate Form W-2 with each employer reporting all wages earned during that time period (to avoid problems with tax withholding).
- Form W-2
- Form 1099
- Form W-4
Defining a “household employee”
A household employee is someone who performs work in your home, such as cooking or cleaning. The distinction between a household employee and an independent contractor is important because you may need to pay different taxes depending on whether the person works for you as part of their job responsibilities or on their own time.
The IRS defines a household employee as “an individual who performs services within the scope of his/her employment.” If a person is considered to be an independent contractor, they aren’t considered your employee and therefore aren’t required to file taxes with the IRS (unless they’re also earning income from other sources).
An employee in your home
Some employees are in the home for a short period of time and may not be considered “household employees”. If you have an employee who lives with you and works from home (for example, as an independent contractor), they’re not considered to be part of your family or household.
If your employee is not related to or related by blood or marriage (such as a parent), they are not considered to be part of your family; therefore, they can’t file taxes as either an individual or head-of-household filer on their own tax return.
Exceptions for household employees
- If you have household employees who do not work more than 15 days in a calendar quarter, you will be taxed at the normal Social Security and Medicare tax rates.
- If your household employee is under age 18 and has not reached age 16 by December 31 of their 19th year, they can still be considered an independent contractor rather than a dependent for tax purposes. In this case, you should use Form 1040-ES to report their income on Schedule C (Form 1040) along with other miscellaneous income from self-employment or business activities that are subject to Self-Employment Tax (SE tax). You can also use Form W-2G to report any tips received by the worker as wages if they meet all other requirements for claiming exemption from SE tax under section 501(c)(3) of the Internal Revenue Code.
Household employers who are exempt from federal income tax withholding
If you are a household employer and pay someone to do work in your home, you are exempt from federal income tax withholding. You do not need to withhold federal income tax from the wages of a household employee if they receive $1,000 or less per month (excluding tips).
If your household employee receives more than $1,000 per month in total compensation (not including tips), then it’s likely that they will be subject to federal income tax withholding requirements. This is because their wages will exceed the threshold for exemption under the Fair Labor Standards Act. It’s also possible that state law may require you to withhold state income taxes from them as well; consult with an accountant or other professional advisor before making any decisions about how much payroll taxes should be withheld from employees’ paychecks based on their situation specific facts and circumstances
If you hire someone to work at your residence you may have household employer tax responsibilities.
If you hire someone to work at your residence, you may have household employer tax responsibilities.
You are required to report and pay federal, state and local taxes on the wages paid to employees. This includes social security taxes for all household employers (even those who do not have employees).
If an employee does not receive a W-2 form from the employer with their name, social security number and other information required by law then they should contact the IRS immediately so that it can be corrected before filing their return next year.
If you have any questions about household employer tax responsibilities, please contact us and we will help you get through your tax problems.