Employment Tax Considerations for Individuals with Household Employees– December 19, 2017

Posted by Deb Elfers

If you have a household, or domestic, employee then you may have employment tax obligations to fulfill as an employer. While some household employees may seem obvious, others may not. To stay compliant, it’s important to first understand the definition of each and then which IRS, state and local obligations may apply. 

Do I Have a Household Employee?

If you pay an individual to provide a service in your home, meaning you control what work is done and how it is done, then you have an employee. Common examples include babysitters, nannies, housekeepers, private nurses and yard workers.
 
If only the worker can control how the work is done, then that individual is not your employee but is considered to be self-employed in the eyes of the IRS. A good rule of thumb to follow is that a self-employed worker generally provides his or her own tools and offers services to the general public as an independent business.
 
A worker who performs child care services for you in his or her home generally is not your employee. Similarly, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.
 
For example, Bob Smith provides lawn services at your residence. Bob runs a lawn care business and offers his services to the general public. He provides his own tools and supplies, and he hires and pays any helpers he needs. Neither Bob nor his helpers are your household employees. 

What Are My Tax Obligations?

If you do in fact have a household employee and meet the thresholds below, you will be required to withhold (if applicable), file and pay related employment taxes. Your obligations will include the following: 

  • Employer Identification Number (EIN). The first thing you will need to do is obtain an EIN if you meet the thresholds for having a household employee.
  • Social Security and Medicare. Employers must pay Social Security and Medicare taxes for household employees that receive wages of $2,000 for the 2017 tax year ($2,100 for the 2018 tax year) or more in the calendar year.
  • Federal Unemployment (FUTA). Federal unemployment tax must be remitted if wages to all household employees total $1,000 or more in any calendar quarter. 
  • Federal Forms W-2/W-3. These will need to be filed with the Social Security Administration by the end of January of the following year to report the wages paid to your employee for the previous year.
  • Federal Form 1040 and Schedule H. These forms will need to be filed as well. The Social Security and Medicare withholding (employee and employer match), federal unemployment and employee federal withholding (if any) are reported on Schedule H of your Form 1040. Employment taxes are due upon filing your personal return. 

In addition, know there are other requirements and considerations, including: 

  • State Unemployment (SUTA) and State Disability Insurance. Requirements vary by state. As an example, below are Ohio’s thresholds:
    • Unemployment. The Ohio Department Job & Family Services requires coverage for a household employee if you pay wages of $1,000 or more in any calendar quarter, in the current or preceding calendar year. 
    • Disability Insurance. The Bureau of Workers’ Compensation (BWC) requires coverage if the domestic worker earns $160 or more from one employer during a calendar quarter.
  • Employee Withholdings. This can include federal, state and city obligations.
    • Federal withholding. This is not required for a household employee unless the employee requests you do so, then a form W-4 must be completed by the employee to determine the amount to be withheld.
    • State withholding. These requirements vary by state, although many states follow federal requirements.
    • City withholding. City withholding may be required if the services are performed in a taxing district and the taxing district requires withholding. 

If you think you may have a household employee, or if you aren’t sure, talk with your tax advisor to help ensure you are fully compliant with IRS, state and local rules and obligations.
 
Please contact a member of your service team, or contact Deb Elfers at delfers@cohencpa.com or Andy Whitehair at awhitehair@cohencpa.com for further discussion.

Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.