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If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes(FICA), pay federal unemployment tax (FUTA), or both.
Workers Who Are Household Employees
A household employee is an employee hired to perform work in or around your home. The worker is an employee if you can control both what and how work is done.It does not matter whether the work is full time or part time or that the worker was hired through an agency or association. It also does not matter whether the worker is paid on an hourly, daily, or weekly basis, or by the job.
Note: If the worker usually provides his or her own work tools and offers services to the general public, he or she is an independent contractor and not a household employee.
Some examples of workers who do household work include the following.
- Babysitters age 18 or older
- Domestic Workers
- Health aides
- House cleaning workers
- Private nurses
- Yard workers
Workers Who Are Not Household Employees
If only the worker can control how the work is done,the worker is not a household employee but is self-employed.A self-employed worker usually provides his or her own tools and offers services to the general public
as an independent business. A worker who performs child care services in his or her home generally is not a household employee.A worker hired through an agency is not an employee if the agency is responsible for who does the work and how it is done.
Household Employment Taxes
Taxpayers with household employees must file Schedule H (Form 1040), Household Employment Taxes, to report FICA tax, FUTA tax, and federal income tax withholding(if any).Form W-2 must be filed for each household employee who was paid Social Security or Medicare wages of$2,100 (2019) or more, or wages of any amount if federal income tax was withheld.Taxpayers who are required to file Schedule H (Form
1040) with their 2019 individual tax returns must obtain an Employer Identification Number (EIN) by January 31, 2020.
The Social Security tax pays for old-age, survivors, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance. Both the employer and the household employee may owe Social Security and Medicare taxes. For 2019, the employer and employee share is 7.65% (6.2% for Social Security tax and 1.45% for Medicare tax) of the employee’s FICA wages. The employer is responsible for remitting boththe employee’s and employer’s share of the taxes. Typically,the employee’s share is withheld from the employee’s wages and submitted with the employer’s payment
Figuring FICA taxes
FICA taxes on Social Security and Medicare wages paid to household employees are figured by the employer.If you pay your household employee cash wages of$2,100 or more in 2019, all cash wages you pay to that employee in 2019, up to $132,900, (regardless of when the wages were earned) are Social Security wages and all cash wages are Medicare wages. However, any non cash wages paid do not count as FICA wages. If you pay the employee less than $2,100 in cash wages in 2019, none of the wages are FICA wages and neither you nor the employee will owe FICA taxes on those wages.
Cash wages include wages paid by check, money order,etc. Cash wages do not include the value of food, lodging,clothing, and other non cash items you give your household employee. However, cash you give your employee in place of these items is included in cash wages.
Wages Not Counted
Do not count wages paid to any of the following
individuals as FICA wages.
1) Your spouse.
2) Your child who is under age 21.
3) Your parent. Exception: Count these wages if your parent cares for your child who is either under age 18 or has a physical or mental condition that requires personal care by an adult, and your marital status
is either divorced, widowed, or living with a person whose physical or mental condition prevents him or her from caring for your child.
4) An employee under age 18 at any time during the year.Exception: Count these wages if providing household services is the employee’s principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.
The federal unemployment tax is part of a federal program that pays unemployment compensation to workers who lose their job. Like most employers, you may owe both the federal unemployment tax (FUTA) and a state unemployment tax. The FUTA is 6% of your employee’s FUTA wages. However, you may be able to take a credit of up to 5.4% against FUTA tax, resulting in a net tax rate of 0.6%. Note: FUTA tax is not withheld from employee’s wages. You must pay FUTA from your own funds.
Figure the FUTA tax on FUTA wages paid. If you pay cash wages to all your household employees totaling $1,000 or more in any calendar quarter of 2018 or 2019, the first $7,000 of cash wages you pay to each household employee in 2019 is FUTA wages.
Do not include cash wages paid in 2019 to any of the
• Your spouse.
• Your child who is under age 21.
• Your parent.
If your employee’s cash wages reach $7,000 during the year, do not figure FUTA tax on any wages paid to that employee during the rest of the year.
State Employment Taxes
If you do not need to pay FICA or FUTA tax and do not choose to withhold federal income tax, you may still need to pay state unemployment tax or carry workers’compensation insurance.
Federal Income Tax Withholding
You are not required to withhold federal income tax from wages you pay a household employee. You should withhold federal income tax only if your household employee asks you to withhold it and you agree.
Please contact the Sarasota CPAs at Sterling Tax & Accounting for more information!