By Walter E. (Skip) Muller, Jr., CPA
Many taxpayers seem to have questions relating to work performed by individuals in their private homes, the reporting required, the records that should be kept, and the handling of employment taxes associated with employing these individuals. While the subject, like most areas of employment, can be quite elaborate, this blog will only attempt to skim the surface.
First, for federal income tax purposes I will briefly identify a few of the job titles that are domestic workers. These include house cleaners, nannies, private nurses, caretakers and health aides to identify a few. If an agency provides these individuals and controls the work that is done, then those individuals are not employees of an individual taxpayer.
When an individual is hired, the individual must complete the U.S. Citizenship and Immigration Services’ Form I-9 Employment Eligibility Verification. The taxpayer must verify proof of their authorization of employment. The completed form and the appropriate copies of the supporting documentation will need to be kept.
If cash wages of $1,900 or more are paid to any household employee during the 2014 calendar year, all the wages are subject to Social Security and Medicare taxes. If paid wages are less than $1,900 in 2014, none of the cash wages paid are subject to Social Security or Medicare taxes.
The IRS made reporting these wages and paying the related taxes somewhat simple by allowing the taxpayer to report on Schedule H of Form 1040. Further, I would recommend including a sentence in your engagement letter that asks the client if they had household workers during the year and request they provide the related payroll information.
While this very brief synopsis is for U.S. federal employment taxes, it does not address the state’s domestic employment taxes and reporting.
Please refer to the following links for more information on the subject of household employment: