Please note the following tax due dates on your calendar, and come back often to keep up with the changes.
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Tips On Paying Taxes For Household Help
If you employ someone to work for you around the house, we find it critically important to consider the tax implications of this arrangement. While many people disregard the need to pay taxes on household employees, they do so at the risk of paying stiff tax penalties down the road.
As you will see, the rules for hiring household help are quite complex, even for a relatively minor employee, and a mistake can bring on a tax headache that most of us would prefer to avoid.
Commonly referred to as the "nanny tax", these rules apply to you only if (1) you pay someone for household work and (2) that worker is your employee.
Who Is a Household Employee?
If a worker is your employee, it does not matter whether the work is full-time or part-time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily or weekly basis or by the job.
If the worker controls how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.
Also, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.
Can Your Employee Legally Work in the United States?
When you hire a household employee to work for you on a regular basis, he or she must complete USCIS Form I-9 Employment Eligibility Verification. It is your responsibility to verify that the employee is either a U.S. citizen or an alien who can legally work and then complete the employer part of the form. It is unlawful for you to knowingly hire or continue to employ a person who cannot legally work in the United States.
Keep the completed form for your records. Do not return the form to the U.S. Citizenship and Immigration Services (USCIS).
Do You Need to Pay Employment Taxes?
If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax or both. Refer to this table for details:
If neither of these two contingencies applies, you do not need to pay any federal unemployment taxes. But you may still need to pay state unemployment taxes (see below).
You do not need to withhold federal income tax from your household employee's wages. But if your employee asks you to withhold it, you can choose to do so.
State Unemployment Taxes
Please contact us if you're not sure whether you need to pay state unemployment tax for your household employee. We'll also help you figure out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance.
Social Security and Medicare Taxes
Social Security taxes pays for old-age, survivor, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance.
Both you and your household employee may owe Social Security and Medicare taxes. Your share is 7.65 percent (6.2 percent for Social Security tax and 1.45 percent for Medicare tax) of the employee's Social Security and Medicare wages. Your employee's share is 6.2 percent for Social Security tax and 1.45 percent for Medicare tax.
You are responsible for payment of your employee's share of the taxes as well as your own. You can either withhold your employee's share from the employee's wages or pay it from your own funds. Note the limits in the table above.
Note: As of January 1, 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on an individual's wages paid in excess of $200,000 in a calendar year. An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee. There is no employer match for Additional Medicare Tax.
Wages Not Counted
Do not count wages you pay to any of the following individuals as Social Security and Medicare wages:
Also, if your employee's Social Security and Medicare wages reach $127,200 in 2017 ($118,500 in 2016), then do not count any wages you pay that employee during the rest of the year as Social Security wages to figure Social Security tax. You should, however, continue to count the employee's cash wages as Medicare wages to figure Medicare tax. You figure federal income tax withholding on both cash and non-cash wages (based on their value), but do not count as wages any of the following items:
As you can see, tax considerations for household employees are complex; therefore, professional tax guidance is highly recommended. This is definitely an area where it's better to be safe than sorry. If you have any questions at all, please call.