If you have hired a gardener, nanny, cleaner, or other types of worker for household work, the law requires you to pay state and federal payroll taxes. This article sheds light on basic things one needs to get started.
Alongside paying their state and federal payroll taxes, it should also reflect on your personal tax return filed annually that some household workers were employed and paid by you.
According to Uncle Sam, a household employee is hired to work inside the house based on the specifics you provide. Uncle Sam classifies the person as an employee as long as you determine what they do and how they do it.
Some household employee’s examples are maids, cleaning workers, drivers, and nannies. Also, private nurses, babysitters, and home health workers are classified into this category. As long as you control the work scope alongside how it is done, the person is your employee.
Defining Household Employment Taxes
You will have to pay your portion of the household employment taxes provided in 2020; you paid your household employee $2,100 or above in cash wages. You also must withhold the funds and pay the Medical and Social Security Taxes placed at 15.3% of the salaries, while your worker's share is 7.65%.
You might not include any wages paid to your partner (spouse), your kid below 21, any employee below 18 years, or your parents. If the total compensation you paid for a household employee is above $1,000 or above in wages, you will have to pay a federal unemployment tax every quarter.
For tax withholding of federal income, there are some options. For instance, one can withhold the Medicare and Social Security tax from a worker's paycheck, and one can pay it personally. In paying the funds yourself, it is a good idea to set the funds aside in another bank account for you to access it when it is tax time.
There is no need to withhold any income tax on any wages paid to household workers except on their request. However, if you will withhold tax, the employee will complete Form W-4 to help determine the income tax amount to withhold.
Failure to pay the employment taxes for any household worker makes one responsible for the required employment taxes, which should have been withheld.
Household employee Wages: Are they tax deductible?
One can deduct all wages paid to some household workers like a cleaner as one expense deduction for dependent care. You can also remove your employer part of Medicare and Social Security taxes alongside state and federal unemployment taxes paid for your home workers.
Other Obligations as an Employer of Household worker
Any household employer must have an EIN (employer identification number), which is not the same as the social security number. You can apply for EIN by filling form SS-4.
All individuals you hire must be qualified to work in America. Also, the employer must verify each worker's identity alongside their work authorization by filing Form I-9. The worker must fill the first section of the form on the first day at work.
Keep Vital Records
A household employer needs to have good records of all the state, and federal taxes paid, alongside those withhold based on the employee's request. Here are some records for every employee that should be done on each payday
Wages are paid with cash or kind.
Employment taxes for the state that you withhold
Income tax for the federal government, tax for social security, alongside Medicare tax for an employee paid or withheld.
Besides, it is essential to have copies of IRS Schedule H (reporting taxes paid for Household employment) alongside Form W-2 (which reflects the annual wage for each worker, the taxes paid, and other relevant information).
Conclusion
Having people work for you at home comes with vital tax responsibilities. There are household employers that wouldn’t mind taking care of the Uncle Tax code's intricacies. Many people, however, do not know the expertise and paperwork required for this.
All in all, getting the help of a tax expert can be incredibly helpful to avoid issues with the law.
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