The Difference Between Household Employees and Contractors

When it comes to caring for routine tasks around the home, many individuals use hired help. Depending on how they hire that help, they may suddenly have a household employee. For many taxpayers, household employees are defined by the tasks that they accomplish within your home, along with how they accomplish those tasks. However, you could also be working with independent contractors. Working with your accountant or tax professional, such as HCS, LLC in North Richland Hills, TX, you can determine if those you hire throughout the year qualify as an employee or an independent contractor.

Who Counts as a Potential Employee

When you control not only what work is completed, but also how it is accomplished, then you are putting yourself into the position of employer. This would be especially true if you provide all the tools to complete the job itself. Most housework that you hire individuals to complete will qualify as employees. Below are a few examples:

• Babysitters
• Cleaning people
• Domestic Workers
• Health aides
• Nannies
• Private Nurses
• Yard Workers

Regardless of the frequency of the payment and the rate of payment, they would still count as employees as long as they meet the above criteria. This would apply even for part-time individuals and those who were found using an agency. Yet, there are exceptions to these criteria, as defined below.

Workers Who Do Not Count as Employees

However, if the worker is in control the work schedule and the timeframe for its completion, then they would not count as an employee. Instead, they would be defined as self-employed. In addition, you would not necessarily be their only client, so they would be operating as an independently-owned business.

For example, if a worker provides day care for your children, but does so in their own home with their own tools, then they would not be an employee. Typically, they would define the work schedule, so they would be in control of how the work was completed.

Agencies may also provide workers for a variety of tasks, including cleaning and other tasks, but the agency will control what work is done and how it is completed. This would be the case if you choose to use a cleaning service to handle any housework.

Responsibilities of an Employer

If your worker does meet the criteria for an employee, then you have tax obligations that must be cared for during the course of the year. Below are a few of those obligations:

• Get an employer identification number (EIN) with the Form SS-4
• May have to pay social security, Medicare, and federal unemployment insurance
• Withhold state and federal income tax at an employee’s request
• Withhold state income tax and pay disability and workers’ compensation insurance (depending on your state’s regulations)
• File paperwork with appropriate government agencies and retain documentation for review upon notice
• Determine employee’s eligibility to work in the U.S. and if state taxes would be owed
• Provide a W-2 to your employee each year
• Keep a record of your employee’s name and social security number exactly as they appear on their social security card

Tax payments need to be made when filing your taxes. Complete the Schedule H to determine the employment taxes due and then add that amount to your income tax. To make estimated tax payments, use the Form 1040-ES to make the appropriate payments. Work with your accountant to determine your tax liability and where the payment should be sent.

Workplace Injuries

For those taxpayers that qualify as employers, then you will need to consider coverage for any injuries that occur in the workplace. Depending on the state you live in, you might need to pay for worker’s compensation insurance. Check your homeowner’s insurance policy, as it could as simple as adding a rider or endorsement versus purchasing a worker’s compensation policy.

Independent Contractors

Understand that if an individual does not qualify as an employee, then they would fit as an independent contractor. However, your tax obligations do not include filling out the IRS 1099-MISC for independent contractors because household workers qualify for an exception from the 1099.

Finally, remember that the critical factor is the status of an individual worker according to the IRS definition. If you have a qualifying household employee, you will need to work with your tax professional or accountant to make sure the appropriate taxes are paid in a timely fashion.

Call or click on the link below to connect with any of the tax professionals or accountants at HCS, LLC in North Richland Hills, TX, to determine if any of the workers at your home qualify as household employees.