With various taxpayers, household help is a part of life in terms of managing many day to day activities. Yet, those individuals who provide household help may trigger a household employee tax threshold as a result of their hourly or by the job payment from the household accounts. Consult with your tax professional or accountant, such as Kaufmann Advisors in San Francisco,CA, to determine if you have any individuals that may qualify as household employees. Below is an overview of how an employee is defined and the responsibilities of a taxpayer to their household employees.
Defining a Household Employee
Since an individual is considered an employee if you control not only what work is completed, but also how it is accomplished. You would also provide all the tools for the job to be completed. Most housework that you hire individuals to complete will qualify as employees. Below are a few examples:
It does not matter if these individuals are paid by the hour, day or the job, they would still count as employees as long as the above criteria has been met. This would apply even if you have hired an individual through an agency or on a part-time basis. Yet, there are exceptions to these criteria, as defined below.
What is an Independent Contractor?
Understand that if an individual does not qualify as an employee, then they would fit as an independent contractor. However, with these independent contractors, your tax obligations do not even need to fill out the IRS 1099-MISC for independent contractors because household workers are considered an exception.
Who Doesn’t Count as an Employee?
However, if the worker is in control of how they complete the work, then they would not count as an employee, but would be considered self-employed. As a result, they would most likely provide their own tools and supplies. In addition, you would not necessarily be their only client, so they would be operating essentially as an independent business of their own.
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. Thus, the worker is an employee of an agency, not your personal employee.
Responsibilities of an Employer
If your worker can be defined as your employee, then you have certain tax obligations that must be completed throughout the year. Below are a few of the obligations required by an employer:
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 how much tax liability you need to cover with each payment.
Who is Responsible for Workplace Injuries or Damages?
Keep in mind that if you meet the definition of an employer, then you will be responsible for any injuries that occur in the workplace. Therefore, depending on the state you live in, you might need to pay for worker’s compensation insurance. Depending on your homeowner’s insurance, you might be able to add a rider or endorsement versus purchasing a separate worker’s compensation policy.
Finally, the most important factor to be determined 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.
and what tax implications you may have as a result.
Simon Hase, CPA