Household employees need to be reported on your taxes. Many people do not realize what constitutes a household employee. The IRS considers you an employer of a person when you hire the person to work in your home and you have control over how the person performs the work. If the worker is your employee it doesn’t matter whether the work is full or part time or that you hired the worker through an agency or from a list provided by an agency. It also doesn’t matter whether you pay the worker on an hourly, daily, or weekly basis or by each separate job. Employees fall into several categories: housekeepers, maids, nannies, gardeners, babysitters, butlers, caretakers, cooks, domestic workers, drivers, health aids and private nurses. A worker isn’t your employee if he/she can control how the work is done. This makes the worker self-employed. A self-employed worker usually provides his/her own tools and offers services to the general public in an independent business. A worker who performs child care services for you in his or her home generally isn’t your employee. Also, if an agency provides the worker and the agency controls what work is done and how it is done, the worker isn’t your employee. Determining if you have an employee and what tax actions need to occur can be confusing. Below are some tips so that you can determine whether you have an employee and what steps you need to follow in order to be lawful.
HIRING AN EMPLOYEE
It is unlawful to hire or continue to employ an alien who can’t legally work in the United States. When you hire a household employee to work for you on a regular basis, the employee must complete the U.S. Citizenship and Immigration Services Form I-9, Employment Eligibility Verification.
WHAT IS THE NANNY TAX?
As an employer you may need to pay employment taxes, also known as the nanny tax. Nanny taxes you may have to pay include: Social Security tax, Medicare tax, Federal unemployment tax and state unemployment tax.
DO I HAVE TO PAY SOCIAL SECURITY and MEDICARE TAXES?
If you pay a household employee cash wages of $1900 or more in 2017, those cash wages may include social security wages and Medicare wages. You will owe Social Security and Medicare taxes on all of those wages. If you have paid the employee less than $1900 in cash wages in 2017, you won’t owe taxes on those wages. However, Social Security and Medicare taxes don’t apply to your employees under the age of 18, children under 21 years old, a spouse and parents.
WHAT CONSTITUTES WAGES PAID?
You will pay federal income withholding on both cash and non cash wages you distribute. Don’t count wages as meals provided to your employee at your home, lodging provided to your employee at your home and up to $255 per month for 2017 for the value of any transit vouchers.
HOW DO I MAKE TAX PAYMENTS?
When you file your 2017 federal income tax return in 2018, attach Schedule H (form 1040) to your Form 1040, 1040NR, 1040-SS or 1041. Use Schedule H to figure your total household employment taxes then add the household employment taxes to your income tax.
WHAT RECORDS SHOULD I KEEP?
You should keep copies of Schedule H or other employment tax forms you file related to Forms W-2, W-3 and W-4. You must also keep copies to support the information entered on your forms. Each payday, you should record the date and amounts of: employee’s cash and noncash wages, any employee social security tax withheld, any Medicare tax withheld, any Federal income tax withheld and any state employment tax withheld.
ARE THERE ANY TAX CREDITS AVAILABLE TO ME?
If your household employee cares for your dependent who is under the age of 13 or for your spouse who isn’t capable of self-care, you may be able to receive an income tax credit against some of your expenses.
Sometimes it is difficult to navigate if a household employee is actually an employee and what steps need to be taken in order to properly ensure the legality of how the employee is being paid and the taxes that are withheld. If you need help deciphering whether or not you have a household employee and what actions should be taken or if you need help with filling out these complicated taxes, please call Scott Horewitch Pidgeon and Abrams, LLC at 847-850-5300.
The information presented above does not represent tax advice. Remember to speak with a tax professional before taking any deductions on your tax return.