If you employ a household employee, such as a nanny, senior care provider, or other household worker, you must ensure that they are paid on time and that all the related administrative work, including tax filings, are done correctly. But the rules can be confusing.
Who is a Household Employee?
To determine if a person who you employ in your household should be treated as an employee for tax purposes, ask yourself the following questions:
- Are the services they provide performed under your supervision?
- Do you supply the tools and materials for them to do the job?
- Does the person doing the job work for you exclusively, or do they provide the same service to others?
Generally, if you are providing the supervision and the tools and the individual works for you exclusively, they are most likely your employee.
Federal Income Tax Withholdings
As the employer, you are not required to withhold federal income taxes on wages paid to your household employee, unless the employee asks you to do so. If you do withhold federal income taxes for your household employee, you will need to complete Form W-4 (Employee’s Withholding Allowance Certificate).
Furthermore, any taxes you withhold will require you to obtain an Employer Identification Number (EIN) from the IRS. The IRS will supply you with an EIN to be used in association with your household employee, instead of using your own Social Security Number.
FICA is a federal program that withholds taxes from employees’ paychecks and matches that with equal contributions from their employers. FICA taxes are comprised of Social Security and Medicare taxes and are required for household employees, the same as for any other employer-employee relationship.
If you paid your household employee $2200 or more during 2020, you must withhold and pay FICA taxes and provide the employee with a Form W-2 (Wage and Tax Statement) at the end of the year. You must also complete Form W-3 (Transmittal of Wage and Tax Statement).
The 2020 FICA withholding requirements for you and your household employee are as follows:
- Social Security: 6.20% for you, and 6.20% for your household employee
- Medicare: 1.45% for you, and 1.45% for your household employee
Federal Unemployment Tax
If you paid total wages of $1000 or more to a household employee in any calendar quarter of 2020, you must pay Federal Unemployment Tax (FUTA). Typically, you want to pay FUTA tax on the first $7000 paid in cash to a household employee. You may also be required to pay State Unemployment Taxes (SUTA).
Foreign Household Workers
If you employ a foreign household worker such as an au pair, whose status is as a J-1 non-immigrant (a non-resident alien), you should know that they are not usually subject to FICA taxes. However, because these foreign workers still need to file U.S. individual income tax returns, they must apply for a Social Security Number.
If your foreign household worker was previously in the U.S. as a non-resident alien, then they may be back in the country as a resident alien. If this is the case, you must withhold FICA taxes and pay FUTA tax.
This is just a brief survey of how complicated your tax responsibilities for a household worker can be. If you currently employ a household worker, or if you are thinking about hiring one, it is a good idea to consult with an experienced professional to determine what your tax obligations will be. Call us today to arrange a free consultation.
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