My time is valuable, and yours is, too. If you're like me, your free time is a valuable commodity to be treasured. When you're not working, you probably want to spend as much time doing the things you enjoy. You want to spend time with your family or your friends. Perhaps you like to golf or jog. Maybe you enjoy cooking at home, or like nothing more than exploring new restaurants. But life has a way of cutting into our leisure time. There are errands to run, bills to pay and a home to clean.
If you can afford it, you may decide to hire someone to handle many chores so you can enjoy more of your leisure time. (Or you may simply realize that you don't have enough free time to handle all of the chores in your day-to-day life.) That's when people hire outside help. Maybe you order groceries online and have them delivered to your home. Or maybe you hire a housekeeper, or a nanny.
This is National Housekeepers Week. Hiring a housekeeper can make your life easier, but it also means you're taking on certain obligations. You are now an employer, and may now be responsible for withholding or paying income tax, Social Security and Medicare taxes, and unemployment tax.
There are two main factors that determine whether you owe taxes for someone working in your home: How much are you paying them, and are they an employee or an independent contractor? I could write pages about the differences between employees and independent contractors, but in general, maids, housekeepers and nannies are almost always your employees. (The exception would be if the person actually works for an agency, you pay the agency and the agency pays the person.)
Employment Taxes Basics
As an employer, you may be responsible for:
- Withholding federal, state and local income taxes from your employee's wages. You'd withhold this tax from each paycheck, based upon the information on his W-4 Form, and submit the withheld money to the IRS. (You don't have to withhold income and FICA taxes from your household employee unless the employee requests withholding.)
- Withholding Social Security and Medicare taxes, also known as Federal Insurance Contributions Act (FICA) taxes, from your employee's wages, and matching your employee's share of FICA taxes. If you pay cash wages of at least $1,700 in 2009, all cash wages are FICA taxable. If you pay less than $1,700 in cash wages in 2009, neither you nor the worker owe FICA tax on any portion of those wages.
- Paying federal and state unemployment taxes if you paid total cash wages of $1,500 or more for all household employees in any calendar quarter of the current or preceding calendar year.
Reporting and Paying Taxes
If you withhold or pay FICA taxes or withhold federal income tax, you have to file Form W-2 and Form W-3, which relate to how much the worker was paid and how much tax you withheld.
When you file your 2009 federal income tax return, attach Schedule H, which is used to figure your total household employment taxes, and attach it to your Form 1040. You add these household employment taxes to your income tax, and pay any amount due by April 15, 2010.
If you employee a household worker and don't pay taxes before April 15, 2010, for the 2009 tax year, you'll have to pay a penalty for late taxes, in addition to paying the taxes that are overdue.
Related Links:
