Who’s a Household Employer?
The IRS defines a household employer as someone who pays an individual to perform duties in or around their home and has the right to control when, where, how or by whom the work should be performed. Household employees include nannies, senior caregivers, housekeepers, nurses, personal assistants, chefs, estate managers, etc.
You may hear that it’s okay to “1099” your worker (Form 1099 is the form used to report payments to an independent contractor). However, with few exceptions, the IRS considers the worker to be your employee, not an independent contractor. Please know that worker misclassification is considered tax evasion and can lead to expensive problems.
The “Nanny Tax” Obligations
Household employers have three primary tax responsibilities:
- Withhold payroll taxes (Social Security, Medicare, and all applicable state taxes) from their employee’s pay each pay period. Income taxes should also be withheld in accordance with the employee’s Form W-4 selections.
- Pay the employer’s portion of Social Security and Medicare as well as state and federal unemployment taxes. In some states, other small employer assessments may apply. Good News! Families are entitled to tax breaks for dependent care.
- File state and federal employment tax returns and remit the employee and employer tax dollars to the appropriate tax agencies.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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