Are you a household employer? If you have someone working for you as a nanny, caretaker, cook, housekeeper, or yard worker, they could be your household employee.

There are a few factors to determine if the worker is your employee:

  1. The work is performed in and around your home.
  2. You control what and how work is done.
  3. They are not in the business of providing the same service to the general public.

If the worker is truly an employee, their wages are subject to social security, Medicare, federal and state unemployment, and possibly state withholding tax. However, you are not required to withhold federal income tax unless requested by your employee. Ask your employee to complete Form I-9 to determine if they can legally work in the United States and Form W4 to determine if they want any federal withholding.

Once it is determined you are an employer, you must apply for a federal identification number for yourself and a W2 will be issued to your employee at year end.

Note, the Social Security Administration does not accept W2s with social security numbers as the employer’s identification number.

It is good record-keeping practice to have the employee track the days and hours worked. The employee’s wages are subject to the taxes listed above, so also keep record of the gross wages, taxes withheld, and net pay. Household employers have the option to not withhold social security and Medicare tax from their employee paychecks, but instead pay those on the employee’s behalf. That is a taxable fringe benefit and will need to be reported on their W2 at year end.

The social security, Medicare, federal withholding, and federal unemployment taxes are paid to the IRS through Schedule H on the employer’s individual income tax return, Form 1040. State unemployment and withholding are generally filed with the state each quarter.

This is just a quick overview of household employer payroll. For more information refer to Publication 926, Household Employer’s Tax Guide on the IRS website.

You can also contact the payroll team at KT to help guide you through the tax filing requirements of having a household employee.