If you hire someone to do work around your home and you don't have an employment relationship with her, she's a 1099 household employee. 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. The distinction comes from whether she works on your terms or hers, as well as the overall amount you'll pay her during the year.
Do Household Employees Pay a Self Employment Tax?
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. 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. However, if your worker works independently, perhaps for you and many other households, that person is likely a 1099 household employee and is responsible for all self-employment taxes.
Household and Nanny Tax Exceptions
You'll only pay tax on your household workers that meet the minimum income requirements for the year. This tax only applies to workers who perform services in and around your private home, including housekeepers, nannies, groundskeepers and private nurses. However, if the worker controls how he does the work and brings his own tools, he's considered self-employed and is responsible for paying his own self-employment taxes. This is an important distinction, since a monthly visit from a housekeeper or a landscaper who plants new shrubs once a year may cost more than $2,100, but he isn't an employee.
2018 Household Employee Tax Changes
Starting in the 2018 tax year, employers must only pay nanny tax on household employees who make $2,100 or more in cash wages throughout the year. 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. The IRS requires that you withhold Social Security and Medicare taxes, which make up 15.3 percent of cash wages. The employee is responsible for 7.65 percent, with the employer responsible for paying 7.65 percent, as well. However, the employer can choose to pay the employee's share.
Housekeeper Taxes in 2017
In 2017, the income limit was $2,000 for household employees. The IRS required that you withhold Social Security and Medicare taxes, which was 15.3 percent of cash wages. The employee was responsible for 7.65 percent, with the employer responsible for paying 7.65 percent, as well.
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