Do you have a favorite babysitter? A cleaning person that comes frequently? A butler, personal chef, chauffer, gardener (ok, at this point, can I be you!?!)  You may have Household Employee Taxes or “Nanny Tax”.  A LOT of people miss this one.

You start out working one day a week and have a few babysitters pop in.  Then you find one you LOVE and start exclusively using her (or him).  All of a sudden that one day a week becomes two or three or five….  Guess what, that babysitter has become your nanny, and is now your employee.

Here is another situation.  You have a cleaning service.  Once a month people come in and clean, but you get attached to one crew.  A member of that crew decides to go it alone.  She (or he) begins to come to your house, use your cleaning supplies, your vacuum, and exclusively works on your schedule.  You may now have an employee.  (This one is a little trickier depending on the amount of houses that person cleans and how much you pay them in a year or a few months’ time, but we will get into that below.)

A household employee is basically any person who works for your household: a cleaning person, babysitter, gardener, butler, chauffer, even in-home health care can qualify.  It is a person who you control not just what they do, but how they do it, when they do it and who does it.  Independent contractors are not household employees for example the exterminator, plumber, electrician, etc.

Ask yourself these questions:

1. Are the duties of this person “household” in nature?
2. Do I control the way this person performs their job?
3. Will I pay him/her $2,100 this year?

If you are answering yes to these with a very specific person in mind, you likely should be paying Household Employee Taxes.  If you are still on the fence, you can always ask the IRS and they will give you an official ruling.  I know you all are rushing to the phone right now to call the IRS.  I will wait…

If you pay your household employee over $2,100 in 2018 or more than $1,000 in a three month period than you are supposed to file a Schedule H with your tax return and pay taxes just like any other employer.  That means you owe 50% of 12.4% Social Security, 50% 2.9% medicare and 100% of the 6% unemployment (AKA FUTA) up to $7,000.  You also may need to pay state unemployment depending on the state.

The only exceptions to this is if the employee is your spouse, your child who is under 21, your parent, or an employee who is under age 18 and this is not their primary occupation (if they are a student, this is never their primary occupation).

You are not required to withhold the employee’s half of the Social Security and Medicare unless they ask you to.  If they do ask you to, then you have more forms.  You need them to fill out a W-4, then you complete a W-2 and W-3, and there are other forms depending on the residency status of the person.  You also may want to do some estimated payments throughout the year, so you aren’t paying a bunch of taxes in April.  That means, yup, more forms, 1040-ES.

If this seems complicated, there is good news.  There are services that are very reasonably priced that will do this for you!  If I were you, this is the route I would go.  While I was in practice, I referred people to Nanny Chex (www.nannychex.com), but a quick search of “Nanny Tax Services” will bring up a bunch, and I encourage you to do your own research and pick someone who is right for you!

Sadly for me, Nanny Chex is not paying me for this referral.  They just treated my clients well in the past and were always good to me, so I am letting you know of their existence.  Also, none of the above is meant to be a substitution for professional tax advice.  Please ask your personal tax preparer/professional or your financial planner when making any tax related decisions.