Dimond Tax Services - An Oakland Calfornia based Tax Return Preparation Firm
Household Employees & Your Taxes



The links above give more specific instructions than the following.

Employment Tax Responsibilities for Employers of Household Workers

Household employees are workers you hire for “domestic
services,” i.e., those services performed in and about
your home. Duties of cooks, butlers, housekeepers,
governesses, maids, valets, babysitters, caretakers,
gardeners, janitors, or personal chauffeurs all can qualify
as “domestic services.”

Not everyone you hire for work at your home is
considered a household employee, though. For example,
a self-employed gardener may take care of your lawn and
several others in your neighborhood, providing all his own
tools and job assistants and setting his own work
schedule. That gardener probably won’t be considered
your household employee because he is running an
independent operation over which you have no “say-so.”
You see, a worker at your home becomes an employee
when you control what work that person is to do AND
how and when the work is to be done. If you qualify as a
household employer, you may have to pay certain federal
payroll taxes, including social security and Medicare taxes
and unemployment taxes. You withhold some of these
taxes from your employee’s wages; others you must pay
from your own funds. (Some states require certain taxes
too, so be sure to check with the state employment
department in your area.)

Taxes You Withhold from Wages

Social Security and Medicare Taxes:

If you pay cash wages in excess of a specified threshold
amount during the year to a given employee, you must
withhold social security and Medicare taxes from the
employee’s wages. This threshold amount ($1,700 in 2009
and 2010, call this office for other years) will vary from year
to year and applies to each separate household employee
you hire.

Example: This year, Jane hired Louise, a housekeeper, and
Rose, a babysitter. She withheld social security and Medicare
taxes from their wages. Over the course of the entire year,
however, she paid Louise only $500 and Rose $800. Since
neither worker’s yearly wage equaled the threshold amount,
Jane owes no social security or Medicare tax for them. That
being the case, she must repay to the workers the taxes she
already had withheld from their wages.

Federal Income Tax:

Household employees may also ask you to withhold income
tax from their wages; you aren’t required to agree to the
request. If you choose to withhold, however, you must
collect the income tax from the employee’s wages (the IRS
publishes tables to let you know how much to withhold)
and you pay the amount withheld to the government.

Additional Taxes You Must Pay

Employer’s Share of Social Security and Medicare Taxes:

As an employer, you must match the amount of social
security and Medicare tax you withhold from your
employee’s wages.

For instance, if you withheld $50 in social security from
your housekeeper’s wages, you would be required to pay
to the government $100 (the $50 withheld from your
employee, plus another $50 from your own funds).

Federal Unemployment Tax (FUTA):

You are also responsible for FUTA taxes if you paid a total
of $1,000 (2009 threshold amount, call this office for other
years) or more in household employee wages during any
calendar quarter of the current year or the previous year.
FUTA tax isn’t a withholding tax but is paid by you alone on
behalf of your employees. (Certain states also assess
unemployment taxes – check with the appropriate agency
in your area.)

Paying the Tax

You report and pay the required payroll taxes for your
household employees along with your regular individual
income tax return. Schedule H, Household Employment
Taxes, is used to figure the amount of the tax that you owe.

Reporting Wages to Employees

You need to give your household employees Form
W-2,Wage and Tax Statement, to report wages and tax
withholding for the year. The W-2 is due to the employee
by Jan. 31 of the year following the year in which you
paid the wages. You must also file a copy of the W-2
with the Social Security Administration (usually by the

To accurately prepare W-2s, you need certain information
from your employee, including his/her name, address, and
social security number. So that you have all the necessary
information available for timely filing, you may want to
have your workers fill out Form W-9, Request for Taxpayer
Identification Number and Certification, when you hire
them. That way you will have data on file to complete W-2s
when the time comes.

Other Paperwork Chores

Form SS–4:

If you have household employees, you will need to
obtain an employer identification number for yourself.
This number is not the same as your Social Security
Number. You get the number by filling out and mailing
Form SS-4, Application for Employer Identification Number,
to the IRS (it’s also possible to have the number assigned
by telephone – the SS-4 instructions explain how to
do this).

Employee Form W–4:

If you agree to withhold income tax for an employee, ask
him/her to complete Form W-4, Employee’s Withholding
Allowance Certificate. The information on this form will
help you determine the correct amount of income tax
to withhold.

Payroll Journal:

You should record in a journal each payday the wages
and withholding of household employees. Set up a
separate record for each employee with room for the
following information:

• Payment date
• Check number
• Gross wages (before withholding)
• Social security tax withheld
• Medicare tax withheld
• Federal withholding, if any
• State withholding amounts (establish a column
for each separate kind of tax withheld)

For computer users, an inexpensive payroll program may
simplify the recordkeeping job.

Keep employment tax records for at least four years after
the later of: the due date of the return on which you report
the taxes, or the date you pay the taxes.

If You Have Other Employees

If, in addition to your household employees, you have
employees in a sole proprietorship, you can choose
whether to pay the employment taxes of your household
workers with your personal tax return or along with your
business payroll returns. If you choose the latter option,
you file W-2s for you household employees along with
those of all your business employees.

Have You Forgotten Anything?

Here’s a quick checklist of issues you should make
sure you have considered when you hire and pay
household employees:

• Legality of worker’s employment in the
United States
• Applicability of state employment taxes and
state return filing requirements
• Applicability of withholding social security
and Medicare taxes
• Income tax withholding agreements
with employees
• Recordkeeping system
• Employer identification number application
• W-2 filing with employees and
Social Security Administration
• Return filing and payment deadlines
Are the Payroll Taxes
You Pay Deductible?
In most cases, the payroll taxes you pay in connection
with your household workers’ wages are not deductible
on your individual tax return. The IRS considers these
taxes, and the wages on which they are based, to be
personal, nondeductible expenses. However, there are a
couple of circumstances when you may be eligible for a
tax benefit for the payroll taxes you pay:

• Child Care Credit – If you are eligible to claim a
Child or Dependent Care Credit based on wages
you pay a household employee who cares for your
child, other dependent, or spouse, the payroll taxes
you pay on the wages are counted as part of your
eligible expenses when figuring the credit.

• Medical Care Providers – The wages and
associated payroll taxes you pay to a household
worker who provides nursing services for you,
your spouse, or your dependent are medical
expenses that may be deductible on your return if
you itemize your deductions. (Note that the same
expense can’t be used both as a medical deduction
and for the Dependent Care Credit.)
In these two situations, the payroll taxes that you include
are the FUTA tax, state unemployment tax, and your
portion of the Social Security and Medicare taxes that
you have actually paid during your tax year. For example,
if you paid FUTA tax in January for medically deductible
wages that you paid to a nurse in the prior year, you would
include the FUTA tax as part of your medical expenses on
your current year return (return for the year in which the
FUTA tax was actually paid). (The wages paid in the prior
year are deductible on your prior year return.) Do not
include the Social Security and Medicare taxes, federal and
state income taxes, or other state or local taxes you’ve
withheld from the employee’s wages, since these amounts
are already part of the gross wages for which you are
claiming the credit or deduction.


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