Dreading April 15? You’re not alone. One poll found that 50 percent of Americans would rather serve on a jury than do their taxes.
Another 25 percent would rather miss their connecting flight than complete their taxes. And 11 percent would prefer a night in jail to dealing with tax issues.
Unfortunately, taxes are more complicated for some people than others. For instance, freelancers have more to figure out. So do those who hire household employees like nannies.
What if you pay your nanny in cash only? That’s called paying under the table, and it’s not legal. You need to pay whatever household employee taxes you owe.
Keep reading to find out what hiring household help means for you come tax time.
Household Employee Rules
The first thing you must do is figure out if you’ve got a household employee. There are two choices here: employee or independent contractor.
Independent contractors have more freedom over their hours and duties. But if you have an employee, that means you’re doing things like telling them when to come to work, as well as what they should do.
Let’s use a caretaker as an example. If you hire someone to care for an elderly relative, then they probably have specific times they come in and help you out.
In other words, you’re not going to say, “Just come in and help us whenever you feel like it.” You’ll ask for help with certain tasks during certain hours.
In this case, that caretaker is probably an employee. As of 2018, you must also pay them at least $2,100 in order for you to owe employment taxes.
The nanny tax doesn’t apply to every single person who works inside your home. But it does apply to most of them.
What are some exceptions? If you have an at-home business and hire an assistant to help with paperwork, you shouldn’t have to pay employment taxes for them.
But if your assistant is also your housekeeper, that’s a different matter. You can make things easier by not hiring the same person to both file your papers and clean your house.
Household Employee Taxes
If you employ a nanny, caretaker, or other household workers, you must give them certain documents.
You must figure out how to give them a W2 that shows their income for the year. That sounds more daunting than it is. It’s the year 2019, so you can generate a W2 online and hand it to your employee.
You’re also expected to withhold certain taxes from their paycheck. These are FICA taxes.
Some employees split FICA taxes down the middle. Other employees pay all of them so they don’t have to take any FICA taxes out of the worker’s check.
You can hire a business accountant to help manage this part. You can also buy tax software and figure it out on your own.
Protecting Yourself and Your Employees
Paying household employee taxes is annoying in the short-term, but it helps you in the long run. Setting up the right payroll apparatus now protects both you and your employee in the future.
Hiring someone to work in your home is a big responsibility. Before you worry about taxes, you should worry about background checks.
Read our blog on the pre-hiring screening process to learn more.
