Household Help – Getting the Taxes Right

More than one nominee for a Cabinet-level position has been undone by failure to pay proper taxes on their employment of household help.  Failure to get the so-called “nanny tax” right might not keep you off the Supreme Court, but it could get you into hot water with the IRS.  Here are some of the major questions and their answers:

Does the Tax Apply to Me?  If you hire someone for household work and that person is your employee, it does.

What is Household Work?  .  As you would expect, baby-sitters, nannies, nurses, caretakers, gardeners and other domestic help would fall under this heading.

How is “Employee” Defined?  A worker is your employee if you control not only what work is done, but how it’s done.  For example, a maid hired to clean your home at your direction is an employee.  A contractor using his own tools and employees to remodel your kitchen or install a patio is not.

What If I Hired My Employee Through an Agency, or for Part-Time Work?  An employee is an employee whether you did the hiring or used an agency, and whether full-time, part-time, salaried, hourly or paid by the project.

What If My Employee Is an Immigrant?  It is your responsibility to determine whether a potential employee is legally qualified to work in the United States.  He or she must then complete USCIS Form I-9, Employment Eligibility Verification, and you must complete the employer portion.  One final note: you keep the form for your records; it is not sent to USCIS.

How Do I Know Whether I Need to Pay Employment Taxes?  If you will pay cash wages of $1,900 or more to any single employee in 2014, you will need to withhold and pay Social Security and Medicare taxes. If you have paid or will pay more than $1,000 total wages in any given quarter of 2013 or 2014, you will need to pay Federal Unemployment tax.  If both scenarios apply, you will need to do both.

Are There Exceptions?  Yes.  You do not need to pay Social Security or Medicare taxes if the employee was a parent, a child, a spouse or under the age of 18 in 2014.  All but the last of those exceptions apply to Federal Unemployment Tax.

What About State Taxes?  The requirements vary by state.  Contact us for details.

For more information contact Jeff Bergman, CPA, Salmon Sims Thomas, serving Texas and the entire United States from offices in Dallas and Arlington.