Domestic Employee Taxes – Federal Requirements for Household Employers, Part II

Household Staffing > Household Employee Tax Guide Overview 1 >  Household Employee Tax Guide Overview 2

What are Your Payroll Tax Obligations as a Household Employer?

employee taxesOnce you have determined if you have a household employee, and you pay that household worker $2,100 or more (for 2019), then you are responsible for employment taxes, including all Social Security and Medicare taxes. You’ll also need to pay federal unemployment taxes for funding unemployment. In the “Do You Need To Pay Employment Taxes?” section of the tax guide, the IRS offers the following guidance:

“If you have a household employee, you may need to withhold and pay social security and Medicare taxes, pay federal unemployment tax, or both.” A brief and clear table, which can help you to determine your obligations and which I encourage you to review, is provided in the online PDF version of the tax guide: Table 1. Do You Need To Pay Employment Taxes? (Please see the table below or page 4.)

Table 1. Do You Need To Pay Employment Taxes?

IF you … THEN you need to …
A Pay cash wages of $2,100 or more in 2019 to any one household employee.

Don’t count wages you pay to:

  • Your spouse,
  • Your child under the age of 21,
  • Your parent (see Wages not counted, later, for an exception), or
  • Any employee under the age of 18 at any time in 2019 (see Wages not counted, later, for an exception).
Withhold and pay social security and Medicare taxes.

  • The taxes are 15.3% of cash wages.
  • Your employee’s share is 7.65%. (You can choose to pay it yourself and not withhold it.)
  • Your share is 7.65%.
B Pay total cash wages of $1,000 or more in any calendar quarter of 2018 or 2019 to household employees.

Don’t count wages you pay to:

  • Your spouse,
  • Your child under the age of 21, or
  • Your parent.
Pay federal unemployment tax.

  • The tax is 6% of cash wages.
  • Wages over $7,000 a year per employee aren’t taxed.
  • You also may owe state unemployment tax.

The IRS stipulates the following:

“You don’t need to withhold federal income tax from your household employee’s wages. But if your employee asks you to withhold it, you can. The employee must give you a completed Form W-4. If you and your employee have agreed to withholding, either of you may end the agreement by letting the other know in writing. If you agree to withhold federal income tax, you’re responsible for paying it to the IRS.”

For more information, review “Do You Need To Withhold Federal Income Tax” on page 8 of the tax guide. Keep in mind that it is considered to be standard practice to deduct income taxes from your household employee’s wages to help prevent a situation in which your employee owes a substantial amount of money when they file their taxes. If an employee elects not to withhold federal withholding taxes, I would suggest obtaining the employee’s election in order to avoid a problem when, later, the employee files their personal taxes.

If you do need to pay social security, Medicare, or federal unemployment tax or choose to withhold federal income tax, read Table 2, the Household Employer’s Checklist, which is provided below and on page 5 of IRS Publication 926. In particular, Table 2 provides guidance on what you may need to do “When you hire a household employee” and “When you pay your household employee.”

Table 2. Household Employer’s Checklist

When you hire a household employee:
  1. Find out if the person can legally work in the United States.
  2. Find out if you need to withhold and pay federal taxes.
  3. Find out if you need to withhold and pay state taxes.
When you pay your household employee:
  1. Withhold social security and Medicare taxes.
  2. Withhold federal income tax.
  3. Decide how you will make tax payments.
  4. Keep records.
By January 31, 2020:
  1. Get an employer identification number (EIN).
  2. Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement.
  3. Send Copy A of Form W-2 with Form W-3 to the SSA. Don’t send Form W-2 to the SSA if you didn’t withhold federal income tax and the social security and Medicare wages were below $2,100 for 2019.
By April 15, 2020:
  1. File Schedule H (Form 1040), Household Employment Taxes, with your 2019 federal income tax return (Form 1040, 1040NR, 1040-SS, or 1041). If you don’t have to file a return, file Schedule H by itself.

The federal employment tax payments you make are reconciled with the information on your employee’s income tax return. Keep in mind that you may also need to submit quarterly unemployment tax filings and reports and payments of state income taxes withheld. You are required to provide each employee with their W-2 form by January 31 of each year.

Review the Full IRS Tax Guide or Speak with Your Accountant About Both Federal and State Requirements

The information in this section offers but a brief introduction to IRS tax requirements for household employers. As mentioned, I highly recommend that you review the guide used as the basis of this section, IRS Publication 926, the “Household Employer’s Tax Guide” to gain a fuller understanding of your federal tax obligations. Moreover, as detailed in Domestic Workers Rights – The Legal Landscape of Household Staffing, a household employer must determine if an employee is eligible to work legally in the United States. Please see the US Citizenship and Immigration Services website regarding completing a Form I-9, Employment Eligibility Verification.

Lastly, I’d like to mention once again that your tax advisor is the best person to advise you on what you need to do to meet not only the federal but also the state tax requirements. A discussion with your tax professional will no doubt help you best navigate through the ins and outs of your unique tax situation. The potential adverse consequences from multiple federal and state agencies in assessing penalties, interest, and withholding taxes could be substantial if the correct process for collecting and reporting is not followed. Moreover, as mentioned in our section entitled “Domestic Workers Rights – The Legal Landscape of Household Staffing”, it’s also wise to have a conversation with your insurance agent prior to hiring a household employee to ensure that the proper insurance coverage is in place.

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