What it is:
A household employee is a person who provides paid services within a private home. These services are often subject to.
How it works/Example:
According to the Internal
For example, let's say John and Jane Doe hire Sally Smith to take care of their two preschool-age children while they are at work. They set Sally's work hours, determine her pay, and have the authority to hire and fire her. Over the course of the , they pay Sally Smith $15,000.
The IRS deems Sally a household employee, and therefore John and Jane Doe must pay on Sally's $15,000 of . "N " is a colloquial for the Social Security, Medicare, and federal unemployment taxes due on the pay to household employees.
Each , the IRS announces the minimum on which the nanny tax applies. In most cases, if John and Jane have their 17-year-old son or other family member watch the kids, the tax also does not apply. According to the IRS, wages paid to a spouse, children under 21, a parent, or any employee under the age of 18 are usually not subject to the tax.
It is important to , however, that independent contractors usually do not fall under the IRS definition of a household employee. So, if Sally Smith runs her own dog-walking business or TV repair service, and John and Jane Doe hire her to walk Fido once a week or fix the TV, Sally would not count as a household employee for tax purposes. Similarly, if Sally Smith works for ABC Maid Service and comes to the house twice a month to clean, she is not a household employee for tax purposes, because the ABC Maid Service provides Sally to the Does and controls the work she does.
Why it matters:
liabilities can come as a surprise to many working parents, and they should take the time to educate themselves about their responsibilities when hiring domestic help. Many people erroneously think the number of hours worked or the full-time/part-time status matters in the eyes of the (it doesn't). Typically, the is tacked on to a 's when filing , though failure to pay the on a timely can trigger interest and penalties from the . Also, states have their own conditions and requirements regarding the .
It is important to that the can apply to any domestic help: gardeners, housekeepers, and other people who are employed in your home (regardless of whether they are caring for your children).