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Posted by RICHARD G OSBORNE CPA

Hiring Household Employees

Hiring Household Employees

What is a household employee? If you have hired anyone to do housework or child care in your home, then you may have hired a household employee. This person is your employee, instead of an independent contractor, if you control the work that they do and how it is done. This includes both fulltime and part time workers, and it does not matter if you hire the person from an agency. Household employees bring with them special tax considerations. Osborne CPA in Palm Desert, California can help you deal with the tax implications of a household employee, without making you wonder why you hired this person in the first place.

Examples of Household Employees

Household employees are more than just housekeepers. They can also include people like:

  • Babysitters or caretakers
  • Domestic workers
  • Health aides or private nurses
  • Cleaning people or maids
  • Nannies
  • Yard workers

It is important to note that these people are only your employees if you provide equipment and direct their work. If you control how the work is being done, then they are likely an employee. If the worker controls how the work is done, then they are likely an independent contractor or self-employed. They are also more likely to be self-employed if they provide their own tools and equipment.

Paying Payroll Taxes on Your Household Employee

It is true that most household employees are paid on a cash basis. However, this could be illegal in certain circumstances. Generally, you will not need to pay Federal income taxes for your household employee, but you can withhold them as they ask you to. However, you may need to withhold Social Security taxes and Medicare. You may also need to pay Federal unemployment taxes.

For 2016, you will need to pay Social Security taxes and Medicare if you have paid cash wages of over $2000 for the year. You may also need to pay Federal unemployment taxes if you paid more than $1000 in any quarter of 2015 or 2016 to household employees.

Social security and Medicare are 15.3% of cash wages total. You pay 7.65% and your employee pays 7.65%. Federal unemployment tax is 6% of cash wages, but wages over $7000 per year per employee are not taxed. Keep in mind, that you’ll need to check with the state where you live to determine if you should withhold state income taxes or state unemployment tax.

There are special rules for certain types of workers. For example, you do not count wages that you paid to your spouse or your child who is under the age of 21. Wages that you paid to your parents may also be exempt. Wages that you paid to any employee who is under 18 do not count for social security and Medicare, but it may count toward Federal unemployment tax.

Steps to Ensure Compliance with Federal Wage and Tax Laws

When you first hire an employee, you will need to be sure that they can work legally in the United States. You do this using a form I-9. Form I-9 is the employment eligibility verification form. It was created by the Department of Homeland Security. It is used for both citizens and noncitizens, and a verifies the employee’s identity and employment authorization. Each of your employees should fill out this form. You will have to review various forms of identification to fulfil your duties as an employer under this form. You may need to look at:

  • Permanent resident card
  • U.S. or foreign passport
  • Driver’s license or ID card
  • School ID card with a photograph
  • Voter registration card
  • U.S. military card
  • School record or report card
  • Doctor or hospital records
  • Social security card
  • Birth certificates

Form I-9 lists out very specific documents that you should review.

As an employer, you also need to get an employer identification number (EIN). You will need this number to file taxes at the end of the year. You also need to issue a W-2 statements to your employees as well. Lastly, you will need to file schedule H. That shows your household employee taxes and is attached to your form 1040.

An experienced payroll tax preparer can walk you through all of these steps. Starting out can be confusing and many people do not realize what employing a household employee entails. Use the experienced tax preparers at Osborne CPA to your advantage. Use the contact button below to call us, or click on the profile link for more information. Don’t let tax concerns keep you from hiring the help you need around the house. Call today!

RICHARD G OSBORNE CPA
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