Domestic Service in Private Homes-What You Need to Know
March 17th, 2020 at 10:12 AM
You might not be aware that the “Nanny Tax” is not just limited to nannies.
The IRS is stepping up its audits on those with workers in their private homes and its not just because of “nannies”.
Here are some of the rules:
- the tax does not apply to household workers who are also farm workers
- the tax applies to housekeepers, maids,babysitters, gardeners, or other household employees who are not independent contractors
- independent contractors generally have their own equipment, supplies, licenses, and operate out of their own entity such as an LLC
- in 2016, if you pay your household employee more than $2000 annually, the “nanny tax” applies and you are required to withhold payroll taxes
- however, if your nanny is under 18 and child care is not her principal occupation, you do not have to withhold FICA tax. For example, if your nanny is really a student who is a part-time babysitter, there is no FICA tax liability for their service
- on the other hand, if your nanny is under 18 and the nanny job is her principal occupation, you must withhold and pay FICA taxes
You should withhold from the start of the job if you expect to meet the annual threshold of $2000 in cash wages. Both the employer and a nanny have the obligation to pay FICA taxes. As an employer, you are responsible for withholding your nanny’s share of the FICA. In addition, you must pay a matching amount for your share of the taxes. The FICA is divided between the social security and Medicare. The social security is 6.2% for the employer and 6.2% for the nanny, for a total rate of 12.4%. The Medicare is 1.45% each for both the employer and the nanny, total rate is 2.9%.
Unfortunately, there are additional rules associated with domestic service in your private home such as how to increase your withholding from your wages or filing and paying quarterly estimated tax payments, how to report if your a sole proprietor, and proper record keeping to name a few.
This is a complicated area of the tax law the needs the proper attention if you have domestic services being provided in your home.