Posted by The TaxAdvocate Group, LLC

Household Employees and Your Taxes

Household Employees and Your Taxes

Some people hire household employees like maids, babysitters, gardeners, caretakers, janitors, cooks, butlers. These are household employees that perform domestic service around the home.

We, however, cannot classify everyone hired at home as household employees. For instance, a self-employed janitor with his tools that takes care of several houses in the neighborhood. This janitor is running an independent operation hence might not be considered a household employee.

You can classify a worker in your home as a household employee provided you are in complete control of the job description and the timing of the job. For people that qualify as a household employer, there are some federal payroll taxes you will pay. This includes Medicare, Social security taxes, and unemployment taxes that you withhold from your worker's wage.

Taxes to be Withheld from Wages

Social Security and Medicare Taxes: It is necessary for you to withhold social security and Medicare taxes provided you pay cash wages that exceed the threshold amount in a year to the employee. 

Federal Income Tax: You might get a request from your household employer to remove income taxes from their wages. While you do not have to agree to this, you will have to collect the income tax from their wage if you agree. There is a table from the IRS that specifies the amount you should withhold.

Medicare and Social Security Taxes (Employer’s Share): You will have to pay the same amount of Medicare and Social Security taxes you withhold from your worker's wages. For instance, if you withheld $30 in Medicare taxes from your gardener's wages, the total amount you are paying the government is $60 ($30 from your employee and $30 from your funds)

In paying this tax, you will have to report and pay the specified federal payroll taxes. The tax you must withhold will be alongside your personal income tax return. With Schedule H, you can determine the amount of taxes you owe.

Reporting Wages to Employees 

Your household employees need Form W-2, Wage, and Tax statements to report their wages and tax obligation for the year. All employees must send in their W-2 by Jan 31 of the following year after the wages. The employer also must file a duplicate copy of Form W-2 with the Social Security Administration by Jan 31. 

Ensure you have all the necessary information to prepare a correct W-2, such as your employee's name, address, and social security number.

Extra Paperwork Chores

Form SS-4: People with household employees need to get an employer identification number (EIN) for yourself, which differs from the Social Security Number. You can apply for the EIN via the IRS website online. 

You can also fill and fax form SS-4. Application for EIN is free; hence be careful of sites that might charge you for this.

Employee Form W-4: All employees that want you to withhold income tax for them must complete form W-4 (Employee’s Withholding Allowance Certificate). From this form, you can know the exact amount to withhold as income tax. 

As a reminder…

These are some checklist of issues you should be sure to consider for people that hire and pay household workers.

  • Recordkeeping system

  • Application for the Employer Identification number

  • Income tax withholding Medicare and social security taxes

  • Payment deadlines alongside return filing

  • W-2 filing with Social Security Administration and the employee

Can Payroll Taxes be deducted?

You cannot deduct the payroll taxes you paid for your household worker’s wages on your personal tax return. To the IRS, these are taxes and the wages based on the individual tax returns.

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