Originally posted on the Breedlove website, here.
We’re household employment experts so you don’t have to be. For those who want to learn more, we’ve distilled all the complex tax and legal code into brief, easy-to-understand answers – or you can always just give us a quick call and we’ll walk you through it.
Here’s what every family needs to know.
Who’s a Household Employer?
The IRS defines a household employer as someone who pays an individual to perform duties in or around their home and has the right to control when, where, how or by whom the work should be performed. Household employees include nannies, senior caregivers, housekeepers, nurses, personal assistants, chefs, estate managers, etc.
You may hear that it’s okay to “1099” your worker (Form 1099 is the form used to report payments to an independent contractor). However, with few exceptions, the IRS considers the worker to be your employee, not an independent contractor. Please know that worker misclassification is considered tax evasion and can lead to expensive problems (see “The 1099 Trap”). Please contact us if you have questions about how to classify your domestic worker.
The “Nanny Tax” Obligations
Household employers have three primary tax responsibilities:
- Withhold payroll taxes (Social Security, Medicare, and all applicable state taxes) from their employee’s pay each pay period. Income taxes should also be withheld in accordance with the employee’s Form W-4 selections (Note: Income tax withholdings are not required by law, but failure to do so may subject the employee to underpayment penalties).
- Pay the employer’s portion of Social Security and Medicare as well as state and federal unemployment taxes. In some states, other small employer assessments may apply. Good News! Families are entitled to tax breaks for dependent care. The tax breaks can offset most – if not all – of the employer tax burden (see “Dependent Care Tax Breaks”).
- File state and federal employment tax returns and remit the employee and employer tax dollars to the appropriate tax agencies.
Important Note: Each state has unique compliance nuances. Click here to learn how it works in your state.