Taxes and Household Employees
By Dr. John L. Stancil
Tax Analyst, WebTaxCenter.com
You and your spouse both work. After long days at the office, you just want to come home, kick off your shoes, and relax. NOT! Unfortunately, there is dinner to worry about, laundry to do, cleaning to take care of. And what about Junior, and his brothers and sisters? They have been away in day care all day long and are now busily occupied playing with their toys, watching their television. Maybe it is time you hired a maid. Perhaps you should hire a sitter to come to the house each day.
Do You Have a Household Employee?
Most households today have two wage earners, and the increasing affluence of the American people has resulted in more individuals having household employees. If your maid and child sitter are self-employed, you do not have to concern yourself with taxes. They do the job, you pay their bill and that is the end of it as far as you are concerned. A person is self-employed if they provide their own tools and supplies and offer their services to the general public as an independent business.
If you control what work is done, how it is done, and when it is done, your household worker may be an employee. If you have an employee, a whole new set of circumstances must be dealt with. You should be certain that the person can legally work in the United States. It is unlawful for you to knowingly hire or continue to employ an immigrant who cannot legally work in the United States. You can have the employee complete an I-9 Form to determine their eligibility for employment.
When you hire someone, you should obtain their social security number as soon as they start working for you. You should have the employee complete a Form W-4 for any withholding allowances.
Reporting and Paying Taxes
The second issue that now faces you is the need to pay employment taxes for your employee. If you pay more than $1,500 during the year to any one person, you must pay social security and Medicare taxes. You may choose to withhold the employee's portion (7.65%) or you may pay the entire 15.3% yourself. Wages paid to your spouse, your child under age 21, your parent, or any employee under age 18 do not count for this purpose. If you pay more than $1,000 in any calendar quarter to household employees (excluding spouse, child under age 21, or parent) you must pay federal unemployment taxes. Most likely you will also owe state unemployment taxes, but this varies from state to state and you should check the laws in your state of residence. If the employee wishes, you may also withhold estimated federal income taxes from their wages.
Fortunately, the IRS has developed a streamlined procedure for reporting and paying taxes on household employees. As a household employer, you should obtain an employer identification number (EIN). This is not the same as your social security number. You may apply for an EIN by completing Form SS-4. This may be done online at www.irs.gov/businesses/small
You will need to provide each employee a Form W-2 by January 31 for wages paid in the previous year. Give copies B, C and 2 to your employee and file copy A and transmittal Form W-3 with the Social Security Administration by February 28. These forms can be transmitted electronically. For electronic filing details go to www.socialsecurity.gov/employer.
The taxes for your household employees are reported and paid on Schedule H of your 1040. This form provides for the payment of social security, Medicare, federal unemployment, and withheld income taxes.
If your employee gives you a properly completed Form W-5, you must make advance earned income credit payments to your employee. IRS Publication 15 (also known as Circular E) has guidelines on how to do this, along with guidelines for the amount of payments you must make to the employee.
In order to avoid underpaying your taxes, you may need to make estimated payments of your tax liability on the 15th of April, June, September, and January. As an alternative, you can request that your employer withhold more Federal income taxes from your regular salary.
You should keep copies of all forms that you file. In addition, you need to maintain a record of your employee's name, address, and social security number. You should also keep a copy of any Forms W-4 and W-5 that your employee gives you.
Other Household Employees
Although this article has addressed two types of household employees - maids and child care providers, there are any number of situations in which you may have a household employee. Household work done for you by any of the following may mean that you have a household employee:
- Health aides or private nurses
- Yard workers
- Cleaning people
You can obtain additional information from IRS Publication 926 "Household Employer's Tax Guide", or from www.irs.gov
. More detailed tax advice may be viewed at www.webtaxcenter.com
. You are encouraged to consult your tax professional, as he or she will be able to advise you on your tax situation in this regard.
Dr. John L. Stancil, a tax analyst for WebTaxCenter.com, has been a member of the Florida Southern College faculty since 1998. He received his bachelors degree from Mars Hill College and holds a M.B.A. from the University of Georgia. He later earned his doctorate in accounting from the University of Memphis. He holds four professional certifications, including CPA, CMA, CFM and CIA. Stancil has received the Florida Institute of CPAs 2005 Outstanding CPA in Public Service Award. (This award is given annually to a Florida CPA who has demonstrated significant contributions through community and civic activities.) He has also been recognized as the Expert of the Month on several occasions by allexperts.com.