If you hire a babysitter twice a month, are they considered your household employee? What about a housekeeper who works in your home once a week? Or, a health aide who cares for your ailing parent in your home every day?
In today’s hectic world of juggling careers, childcare, errands, and other obligations, many households engage outside help to perform these types of services. What these families may not realize, however, is that these individuals that help lighten the day-to-day burden may come with tax consequences. The world of household employees can be confusing, but it is important to understand the basics so that you can determine: 1) if you have a household employee, and 2) if and when you have employment tax responsibilities associated with your household employee.
These individuals that help lighten the day-to-day burden may come with tax consequences.
If you have a household employee, you are required to withhold and pay employment taxes. If you fail to do so, you will generally be liable for the employment taxes that you should have withheld and paid, along with associated interest and penalties. You are responsible for payment of your employee’s share of taxes as well as your own share as the employer. You can either withhold your employee’s share from their wages or pay it from your own funds.
Generally, if someone completes tasks in or around your home and you control not only what work is done but also how it is done, they are considered a household employee. It does not matter whether the work is full-time or part-time. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job. This could include workers such as babysitters, cooks, drivers, health aides, housekeepers, nannies, private nurses, and yard workers.
There are two significant exceptions when determining if you have a household employee. If the worker is self-employed and offers services to the general public in an independent business, or if the individual is under the age of 18 at any time during the year and is a student, such a worker is not your household employee.
Once you have established that you have a household employee, the next step is determining your employment tax liability. If you pay wages of $2,100 or more in 2019 to any one household employee, you are required to withhold and pay Social Security taxes.
Additionally, if you pay wages of $1,000 or more in any calendar quarter to a household employee, then you must pay federal unemployment tax of 6%. For 2019, the maximum wages subject to federal unemployment tax are $7,000.
In addition to federal unemployment tax obligations, you may also have state unemployment tax obligations. In Louisiana, an unemployment tax rate will be assigned to you once you apply for a Louisiana employer account with the Louisiana Workforce Commission. The maximum wages subject to Louisiana unemployment tax is $7,700 in 2019. The total state unemployment taxes paid can then be used as a credit against a portion of your federal unemployment tax liability.
Both the federal and state unemployment taxes are imposed on the employer only. You are not required to withhold federal and state income tax from your household employee’s wages but you may agree to do so, if your employee requests it.
P&N tax advisors are available to help you determine your household employment tax liabilities. If you have questions about your particular situation, contact us today.