Employers of household help have chores too: taxes
CHICAGOMore and more, families are relying on household help to ease the burden of balancing work and family responsibilities. If you hire babysitters, cleaning people, yard workers, or others to help you keep house, you may have some tax housekeeping chores of your own to do including properly classifying workers, withholding and paying employment taxes, and filing tax returns. The Illinois CPA Society addresses some of your questions.
How do I determine whether a person who helps in my household is my employee?
According to the IRS, you are an employer if you determine when and how the work is done and if you provide the materials, such as cleaning supplies. On the other hand, if your household worker has other clients, controls how the work is performed, and uses his or her own supplies and materials, you would not be considered the employer. Nor are you the employer if your worker comes to you through an agency or cleaning service that treats that person as an employee.
Keep in mind that payments you make to students under the age of 18 for babysitting, yard work or other domestic services are exempt from employment taxes regardless of how much you pay them.
As an employer of household
help, what taxes do I need to pay?
If you pay a household worker cash wages of $1,300 or more in 2002, federal law requires that you withhold and pay Social Security and Medicare taxes (FICA). You and the employee each owe 7.65 percent. Youll need to withhold your employees share from his or her wages and pay it, along with your matching amount, to the IRS. Should you decide, as an added benefit, to pay your employees Social Security and Medicare taxes from your own funds, the employees share still must be included in their wages for income tax purposes.
If you pay cash wages of $1,000 or more in any calendar quarter of 2002 to a household employee, you are responsible for a federal unemployment tax (FUTA) of 6.2 percent. (You may, however, be eligible for a tax credit for part of that amount.) Remember that FUTA taxes must be paid out of your own funds and not withheld from your employees wages. Call your state agency to determine whether you owe state unemployment tax as well.
As the employer of a household worker, you are not required to withhold federal income taxes from your employees wages. However, you may do so if the employee asks you to and you agree.
The employee must provide you with a completed Form W-4, Employees Withholding Allowance Certificate. Publication 15, Circular E, Employers Tax Guide, includes income tax withholding tables for determining how much to withhold.
How do I report and pay taxes?
First, you must file Form SS-4 to obtain a nine-digit employer identification number (EIN). You cannot use your Social Security number. The form is available through your local Social Security office. Instructions accompanying the form explain how you can get a number immediately by telephone or in about four weeks when you apply by mail.
When you file your federal tax return, attach Schedule H, Household Employment Taxes, to your Form 1040. Schedule H has the tables you need to compute your total household employee taxes (Social Security, Medicare, FUTA and federal income taxes). Add the federal employment taxes you owe to the income tax you report on your return and pay the amount due by your filing date. Or, to avoid owing tax with your return, you can pay enough tax during the year through withholding or estimated tax payments.
By Jan. 31 of the year after payment, for each household employee for whom you withheld taxes, you must file a W-2 Form, showing the total wages paid, and the amount of Social Security, Medicare and income taxes.
Where can I get help?
Publication 926, Household Employers Tax Guide, provides complete information on the tax responsibilities associated with employing household help. If you need additional advice, consult a CPA.