October 2, 2014
Did you hire someone to do a little work around the house, or care for your children this summer? If so, you may be subject to federal and state filing requirements under the Nanny Tax rules. The worker is considered to be a household employee if you control the work that is done as well as how it is done, you provide all the necessary tools and supplies required for the work, and the worker does not provide the services to the general public as an independent business. A worker who performs child care services for you in his or her own home generally is not your employee.
The Nanny Tax is not limited to nannies. It also includes housekeepers, caretakers, babysitters, health aids, gardeners, and drivers. Payments to the following are exceptions and are not considered payments to household employees:
If you have a household employee, you will need a Federal Identification number for tax filings. If you do not have one, you may apply online at www.irs.gov. You may also call the IRS, fax, or mail Form SS-4 to the IRS.
Both you and your household employee owe social security and Medicare taxes on all wages if the worker was paid more than $1,900 in 2014. You would withhold 7.65% (6.2% social security and 1.45% Medicare tax) of the employee’s wages, and then you will be required to ‘match’ all social security and Medicare tax withheld. In other words, you will pay 15.3% of the employee’s gross wages as taxes, of which half (7.65%) of this amount represents the amount you withheld from the employee’s paychecks. You can choose to pay all of the tax instead of withholding the 7.65% from the employee’s wages, however, your payment of the employee’s portion of the taxes would be considered additional income on the employee’s W-2 form. You are not required to withhold federal or state income taxes from your household employee’s wages unless your employee asks you to do so and you agree. If that is the case, have the employee complete Form W-4 and Form IL W-4 (in Illinois) so you can determine the correct amount of Federal and state taxes to be withheld.
If you pay any social security and Medicare wages, $1,000 or more of wages in any calendar quarter, or any wages from which you withhold federal income taxes, you must file Forms W-2 and W-3, with the IRS. You must also file a Schedule H with your personal tax return. The majority of taxes are paid with your personal tax return. If state income taxes are withheld, you will be required to report this to the state and remit the withholdings separately. In Illinois, state unemployment taxes generally must be paid if wages of $1,000 or more are paid to a household employee in any calendar quarter. You should contact the Illinois Department of Employment Security to register as a household employer, report any newly hired employees within 20 days of the date of hire, and remit state unemployment tax. Both federal and state unemployment taxes are paid by the employer, not withheld from the employee’s wages.
For further information, refer to Internal Revenue Service Publication 926, Household Employer’s Tax Guide available at www.irs.gov and contact a competent tax advisor for assistance.
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