Household Worker Tax

Not unlike other taxes, the household worker tax is very confusing to many people.  This tax usually applies to individuals who are 18 years of age or older who you hired as a nanny, housekeeper, maid, companion, babysitter, private nurse, health aide, caretaker, butler, household manager, personal secretary or any other service to be performed in your home. 

If you pay someone $1700 or more (in 2010 - this amount is adjusted each year by the Social Security Administration) for services that they provide in your home you are considered their employer by the IRS.  

Being their employer make you solely responsible for remittance of the Social Security and Medicare taxes.  This means that if you fail to collect this tax from the employee (usually done through payroll withholding) you just increased your taxes because now you have to pay their share of Social Security and Medicare taxes as well as your share.  In addition to Social Security and Medicare taxes, depending on the state you live in, you may also be subject to State Unemployment and disability insurance taxes.

The person you hire is subject to Social Security tax, Medicare tax, Federal taxes and possibly state and local taxes as well as employee disability and unemployment taxes. 

Household employees must be paid at least the minimum wage (Federal minimum wage is currently $7.25 - you are required to pay the higher of the Federal or your state's minimum wage).  If your household employee does not live with you, you are required to pay them one and one-half times their normal rate when they work more than 40 hours per week per Federal law (again your state law may be different and if it requires you to pay more than Federal that's what you have to pay).

You are required to report the names and social security numbers of all newly hired workers to the state within 2-4 weeks of their hire date.

Most state require that employers report their household employee wages and remit their taxes quarterly, some allow annual reporting.  In addition to these reporting requirements you are also required to provide a W-2 to your employee and submit a copy of the W-2 to the Social Security Administration as well as preparing another schedule (Schedule H) on your individual tax return.  Many employers are surprised by the size of their annual employment tax liability for their household employee.  This usually seems to fall in the $5,000 - $8,000 range.  Most employers include this amount in their quarterly estimated tax payments.

Tax law can change daily, please talk to your tax adviser before making decisions that will affect your taxes.