If you hire someone to do work around your home and you don't have an employment relationship with her, she's an independent contractor. In this case, she's responsible for paying her own self-employment tax, which includes Social Security and Medicare taxes, directly to the Internal Revenue Service. If she's an actual employee, you're supposed to take Social Security and Medicare taxes out of her paychecks.
When to Withhold Taxes
Household employees do not pay self-employment tax, which is a term used to describe the Social Security and Medicare taxes that self-employed people must pay. Instead, they pay those two taxes through withholding, when you deduct the amounts from their wages. At the time of publication, you must withhold Social Security and Medicare taxes from a household employee's paychecks if he earned cash wages of $1,900 or more. If he earned less than $1,900, neither you nor the employee needs to pay taxes on those wages. Cash wages include payments you make in cash, check, money order or direct deposit. You must submit all Social Security and Medicare withholding plus your own portion of those two taxes to the Internal Revenue Service.
Employee and Employer Rates
As of the publication date, you should withhold Social Security tax from your household employee's wages at 6.2 percent, up to $117,000 for the year. Deduct Medicare tax at 1.45 percent of all wages. As a household employer, you must pay the same amount for both of these taxes. If your employee earns more than $200,000 for the year, deduct an additional Medicare tax of 0.9 percent on the extra amount. You do not have to pay additional Medicare tax on the excess wages; only the employee pays it. If you prefer, you can pay your employee's portion of Social Security and Medicare taxes out of your own pocket.
You must give your employee an annual W-2 that shows wages that were subject to Social Security and Medicare taxes and the amount of taxes withheld for the year. Enter Social Security wages in Box 3 of the W-2, Medicare wages in Box 5, Social Security tax withheld in Box 4, and Medicare tax withheld in Box 6. If you paid the employee's share of taxes, do not add the amounts to her Social Security and Medicare wages.
Withholding Based on Estimate
If you're not sure whether you will pay the employee at least $1,900 for the year, you can take taxes out of his wages based on that amount. If you end up paying him less than $1,900, refund him the excess withholding.
Federal Income Tax Rules
You do not have to take federal income tax out of your household employee's wages. The employee can request that you withhold it, but you can refuse, in which case, she's responsible for paying her own federal income tax to the IRS in the form of estimated tax payments. If you deduct federal income tax from her paychecks, include the wages subject to the tax in Box 1 of her W-2. Put her federal income tax withholding in Box 2. If you absorbed her Social Security and Medicare taxes, include the amount in Box 1, which shows her federal wages.
You might need to pay federal unemployment and state unemployment insurance on your household employees' wages. Only the employer pays federal unemployment insurance. In most cases, the employer alone pays state unemployment insurance. However, there are exceptions. For instance, in Pennsylvania, both the employer and employee pay state unemployment insurance.
- IRS.gov: Self-Employment Tax (Social Security and Medicare Taxes)
- Proctor Company: Independent Contractor (Self ‐ Employed) or Employee?
- IRS.gov: Publication 926
- IRS.gov: Topic 756 -- Employment Taxes for Household Employees
- IRS.gov: 2014 Form W-2
- HomeWork Solutions: How Are the Household Employee's Payroll Taxes Paid?
- Pennsylvania Institute of Certified Public Accountants: Do I Need to Withhold Taxes From My Domestic Staff’s Pay?
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