Do You Have a Household Employee? Here’s What You Need to Know for Tax Purposes
By Danielle Piazza, Staff Accountant, MS & Consulting - Financial Services
Two people are working in your home today: a housekeeper and a window washer. Which one could be considered your household employee by the IRS?
If you hire someone to do household work in and around your home and you control not only what work is done but how it is done, then the employee performing the work is considered to be a household employee. It doesn’t matter if their schedule is full-time or part-time, or if you hire them on your own, from an agency or an association. It also doesn’t matter whether you pay them hourly, daily, weekly, or by the job.
Examples of household employees include:
- Babysitters and nannies
- Butlers and cooks
- Housekeepers, house cleaners, maids, and domestic workers
- Health aides and private nurses
- Housecleaning workers
- Caretakers and yard workers
- Drivers and chauffeurs
Workers not considered to be your employees are those who are self-employed and can control how the work is done. They supply their own tools and offer services to the general public.
- Repair people
- Other independent contractors
If you obtain household services through an agency and pay the agency, which then pays the worker, these workers are not considered household employees for tax purposes, as they reside on the payroll of the agency.
So, to answer the questions above: it’s likely that the housekeeper would be considered a household employee if you control what work is done, how it is done, and you pay them directly. If you occasionally hire the window washer and they bill you for work performed as an independent contractor, they are not considered a household employee.
To properly report and meet tax requirements for household employees, you first will need to obtain an Employer Identification Number (EIN) to file Schedule H, Household Employment Taxes with the IRS. The application form can be found on the IRS website at IRS.gov/EIN or by faxing or mailing Form SS-4 to the IRS. Your household employee will need to complete Form I-9 (Employment Eligibility Verification) which verifies their identity and confirms that they are legally eligible to work in the U.S. You also will need to obtain a state unemployment insurance account number. This varies from state to state, so check with your state offices to see which department issues it.
Your Tax Responsibilities for Your Household Employee
Your employee will be required to pay federal income tax on the wages they earn by working in your home. Although you are not required to withhold federal income tax from wages paid, if your employee requests that you withhold it, then you should do so. The employee will need to complete Form W-4 to specify the amount to be withheld.
You are required to withhold Social Security and Medicare taxes on wages paid to your household employee when you pay $2,200 or more in wages for 2020 (adjusted annually). The Social Security tax rate is 6.2% for the employee, and the employer and the wage base limit is $137,700 (adjusted annually). The Medicare tax rate is 1.45% for the employee and employer, and there is no wage base limit.
Federal unemployment taxes and state unemployment taxes must be paid by you, the employer. You are not required to withhold state income taxes, but your employee may request that you do so and you should comply. Depending on the city you live in, you may be required to withhold for local income taxes as well.
Tax Filing Requirements
As an employer, you will be required to submit state quarterly unemployment tax filings as well as file quarterly for withheld state and local income tax payments, if applicable. Annually, you should provide Form W-2 to each household employee by January 31, for the prior tax year. A copy of Form W-2 should also be sent to the Social Security Administration. You’ll need to complete Schedule H when you file your individual tax return for the year. If you don’t file a return, you still must file Schedule H. Schedule H is used to calculate and report how much tax you paid for your employees.
All of this may sound much more complicated than you may have expected, but your accountant can ease the tax reporting burden. Some payroll services such as ADP or Paychex may be able to handle the administrative aspects, but check first, as not all services will handle household employees. More information on your tax responsibilities for household employees is available at irs.gov.
Marcum’s Accounting Services advisors can provide guidance on tax filing and withholding requirements for household employees. Consult your Marcum advisor for assistance.