Between full time jobs, children, and pets many people pay others to help them with household chores and related tasks. If you pay an individual to run errands for you, babysit your children, walk your dog, or do other types of work for your home, you may have additional tax obligations as a “household employer.” The IRS considers you to be a household employer if you pay someone to do work for you and control the work that is done and how it is performed. The person working for you is considered to be your “household employee” unless he or she is your parent, child, spouse, or an unrelated person under the age of 18.
Under federal law you are required to withhold and report taxes on the amounts paid to your household employee if either of the following are true: (1) you paid a household employee more than $1,900 in cash wages during the 2014 calendar year; or (2) you paid a household employee more than $1,000 in cash wages during any quarter in 2013 or 2014. If you fall within either scenario you are required to withhold and report Medicare and social security taxes from future amounts you pay to that person, and may be obligated pay federal unemployment tax to the IRS. If you live in California and have paid more than $750 to during the calendar year, you may have additional state tax withholding and reporting requirements with the Employment Development Department (“EDD”).
In order to correctly withhold, pay, and report federal employer taxes correctly you will need to obtain a Federal Employer Identification Number (FEIN), issue a W-2 to your household employee in early 2015, and report the amounts due along with your 2015 personal income tax return. To comply with the state requirements you may be obligated to register yourself and your household employee in addition to withholding and/or reporting taxes including payroll tax, state disability and state unemployment.
The household employer rules can be complicated and burdensome. If you have questions about the household employer rules or have been audited by the IRS or EDD, contact us at Hone Maxwell LLP.