Do you employ, or are you thinking about employing, a housekeeper or nanny? Well, if you employ any type of household employee, that will mean paying not just them, but also paying taxes on their income. (Unless you choose to hire someone indirectly, though a business that will then pay their taxes!)
Hiring a household employee directly will mean filling out a few forms, one of which is tax form 1040, Schedule H.
Household employees perform work in and around your home. Here’s a list of examples of household workers:
- Cleaning people
- Domestic workers
- Health aides
- Private nurses
- Yard workers
Now, keep in mind that the work performed is not solely what determines whether or not the individual is a household employee. A person is your employee if you control the work they do and how it is done. If only the worker controls how the worker is done, that worker is typically considered self-employed.
For example, if you hire a maid service, and the service controls how the work of cleaning your home is performed, they are not typically considered your employee.
Also, workers who provide childcare away from your home are typically not considered employees.
As a side note, if your household work requirements can be taken care of via services, it could save you the administrative hassles that come with employees.
In addition to the Schedule H, household employers have to fill out a W-2 for each employee, and a W-3 to send each Copy A of all forms W-2 to the Social Security Administration. If you can get your household work done without employing people directly, consider saving yourself the extra paperwork AND tax payments.
If you do have household employees, here is a quick guide to the Schedule H:
You’ll need basic personal information, including your name and social security number. You’ll also need your employer identification number (EIN). If you don’t have one of these, don’t worry. Consult Form SS-4 for how you can obtain one instantly online or via phone.
You’ll also need the total amount of wages you paid to your household employees within the year. If that amount totals more than $1,700, it will be subject to Social Security and Medicare taxes.
To find out how high each of these taxes will be, multiply the amount of taxable income by 12.4% for Social Security, and by 2.9% for Medicare. If you’ve withheld any federal taxes from your employee’s pay, you’ll have to record that on the Schedule H.
If you paid employees any advance payments for the Earned Income Credit (EIC), you’ll record that too. Finally, you’ll total all taxes and subtract any EIC payments.
For Section B of Schedule H, you’ll need any information pertaining to contributions to state unemployment insurance programs. That information includes the name of the state, the state reporting number, the amount paid to such programs, and the total amount of wages subject to Federal Unemployment (FUTA) tax.
If you have multiple household employees and feel daunted by the process, or if you find all of these tax laws downright confusing, there’s one more option that can make this easier on you: hire an accountant to take care of it for you.
Understanding the differences between state and federal employment tax laws can be very complicated. Often it’s best to hire a professional to take the work, and the headaches, off of your plate. And remember, you can always avoid paying and filing employment taxes if you can take of household needs through services, rather than employees.
Published or updated April 5, 2013.