Hiring someone to work inside your home is a big decision, and tax implications come with any domestic working arrangement. To determine your household employment tax, you’ll first need to assess whether the person you hired is a household employee or a contractor. There are also certain tax documents that household employees should be familiar with when preparing for tax season.
Let’s explore these concepts to help household employees and employers navigate domestic work arrangements.
What Is a Household Employee?
According to the IRS, household employees are people who work in a home environment where the employer can control their work and how they do it. Household employees include babysitters, nannies, chauffeurs, butlers, housekeepers, private chefs, and yard workers. Household employees can handle many different tasks within a home, ranging from childcare to laundry, cooking, driving, landscaping, organization, scheduling, estate management, and much more.
Meanwhile, other professionals who provide services inside a home are independent contractors, such as plumbers and electricians. People who work for independent cleaning and landscape companies are not household employees. Household employee wages must be at least the federal minimum wage because the Fair Labor Standards Act protects these workers.
Household Employees vs. Contractors
Employees receive W-2 forms from their employers and have Social Security and Medicare taxes taken out of their paychecks. However, independent contractors receive 1099 tax forms and earn payments without deductions taken out for taxes.
People who are independent contractors are considered self-employed and responsible for reporting their earnings and paying taxes directly to the IRS. Household employment tax planning is necessary even if you only hire temporary staff.
Taxes for Household Employees
If you are considering hiring a domestic worker as a household employee, you should know that you must pay employment taxes, including Social Security, Medicare, federal unemployment, and possibly state unemployment taxes. You’ll need to file a separate W-2 Wage and Tax Statement for each household employee who works for you if you pay them over a certain amount in wages for the year, and additional schedule forms may be required based on your situation.
It is highly recommended to consult a tax professional to discuss the status of your household employees before tax season to handle how to report household employee income properly. Professionals working as household employees should familiarize themselves with the relevant tax documents, including Form W-2, Form W-3, and Schedule H.
Trust Pavillion with Tax Compliance and Reporting
Doing taxes is overwhelming for many people, so if you have questions about taxes for household employees, you are certainly not alone. As part of our commitment to the household staffing industry, we established the Pavillion Group to address our clients’ payroll, benefits, and tax needs. The valuable services of the Pavillion Group include tax compliance and reporting to give you peace of mind and relieve you of the burdens and red tape of figuring out tax implications on your own.
Since 1962, Pavillion has been the leader in the field of personal service and become the largest household staffing agency in the country. To learn more about our household employment tax services, please reach out to our team!
