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Tax Law 101 for Families with Private-Duty Care Needs

Published June 18, 2014

By Tom Breedlove, Director, HomePay, Provided by Breedlove

When a family hires an individual to perform duties in or around their home, they are considered a household employer. The IRS views the worker — whether a nanny, senior caregiver, health aide, etc. — as an employee of the family for whom she works. For most families, having household payroll and tax responsibilities is akin to learning a new language and most have no clue where to go for guidance. So to help simply this process, here are five quick tips you need to know about household employment before your hire.

#1: Tax responsibilities kick in at $1,900

If a household employee is paid $1,900 or more in a calendar year, the employer is required to withhold and remit payroll taxes to the state and the IRS. If the employer pays less than $1,900, they are still legally obligated to adhere to federal and state labor laws even though no employment tax filings are required.

#2: Household employers must withhold taxes from their employee’s paycheck each pay period

Specifically, 6.2% of gross wages should be deducted for Social Security taxes and 1.45% for Medicare taxes. By law, these taxes (collectively known as “FICA”) must be withheld from the employee’s pay – or else the employer is responsible for them. The employee’s federal and state income taxes are NOT required by law to be withheld, but it is a good idea for the employer to do so. Otherwise, the employee may have a large tax bill due at the end of the year and may be subject to underpayment penalties.

#3: Household employers are required to pay federal and state employer taxes

Just like the employee’s withholdings, employers must pay a 6.2% Social Security tax and a 1.45% Medicare tax on top of the gross wage they pay their employee. It’s sometimes called the “employer match” of the FICA taxes. Additionally, household employers are responsible for paying federal and state unemployment taxes. These taxes must be reported and remitted along with the withheld employee taxes throughout the year.

#4: Additional paperwork is required at year-end

By the end of January, household employers should provide a Form W-2 to their employee. They should also file Form W-2 Copy A and Form W-3 with the Social Security Administration and attach Schedule H to their federal income tax return.

#5: Employers must meet federal and state labor law requirements

Household employees are classified as non-exempt workers. As such, they must be paid at least minimum wage for every hour they work and be paid overtime for all hours over 40 in a 7-day workweek. The rate for overtime pay must be at least 1.5 times the regular rate of pay. (Note: Live-in employees in New York must be paid overtime once they reach 44 hours in a week). In addition, most families in New York are required to carry a Workers’ Compensation and Disability insurance policy (policies can be procured through the New York State Insurance Fund). Following the Domestic Worker Bill of Rights in New York passage in 2010, household employees are entitled to 3 days of paid vacation and 2 days of paid sick leave after one year of service.  Finally, employers in New York must provide a written wage notice (or employment agreement) each year by February 1 as well as detailed paystubs illustrating hours worked, total wages and all tax withholdings.

If you have any questions, please consult IRS Publication 926 or feel free to call us at 1-888-273-3356.

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