If you pay for household help, you may be liable for the “nanny tax,” even if your employee is not a nanny, per se. The nanny tax refers to three federal employment taxes that household employers may have to pay for their domestic workers–Social Security, Medicare, and unemployment taxes. If you hire someone to work in or around your home, you’ll need to know what federal income tax issues (if any) apply, and what forms may be required. Although you may have to withhold and pay federal employment taxes in certain cases, you won’t have to withhold federal income tax from your household employees’ wages (unless you choose to do so).
In addition to federal employment taxes, you may be required to pay state unemployment and disability taxes and/or carry workers’ compensation insurance. Because state tax requirements may differ from federal, you should check with the appropriate agency in your state for further information.
If you have a household employee, you may need to do the following:
• Withhold and/or pay Social Security and Medicare taxes
• Pay federal unemployment tax
• Pay state unemployment tax and comply with other state requirements
• File appropriate federal and state tax reporting forms
• Comply with federal labor laws
You aren’t required to withhold federal income tax from your household employee’s wages. If your employee asks you to withhold it, however, you may choose to do so.
For more information about household employers, see IRS Publication 926 (Household Employer’s Tax Guide).We can help guide you the through the maze of employment taxes and registrations and process your payroll through RedWolf Payroll.