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Household Employees and Employment Taxes

Household workers can either be employees or self-employed. If they are considered employees, it is mandatory for their employers to pay employment taxes. Usually, household employees include babysitters, domestic workers, nannies, drivers, yard workers, etc. If you have workers providing their services at your home, you may need to determine if they are technically your employees.

Is Your Worker an Employee?

Household EmployeesFor tax purposes, a household work is an employee if you control what work he/she does, and also how the work is done. If both these criteria are met, the household worker is your employee. If the worker determines how the work is done, then the worker is not your employee, but is self-employed. For example, a child care service provider that works in his/her home is not your employee. However, a child care worker coming to your home to provide the service can be your employee.

Do You Need to Pay Employment Taxes?

Employment taxes are paid by employers, and include social security and Medicare taxes, and/or federal unemployment tax. Employers need to withhold and pay employment taxes from the wages of their employees.

Figuring the Employment Tax

Social Security and Medicare Taxes: If you pay cash wages of $2,000 or more in 2016 to a household employee, you need to withhold and pay social security and Medicare taxes at the rate of 15.3%. The division of your employee’s share and your share of taxes is 7.65% each. You may choose to pay the employee’s share yourself or withhold it from his/her pay.

Additional Medicare Tax: If you pay more than $200,000 to an employee in a calendar year, you are required to pay Additional Medicare Tax from the wages you pay. Additional Medicare Tax only applies to employees, not employers.

Federal Unemployment Tax: If the total cash wages exceeds $1,000 in a calendar quarter of 2016, you need to pay federal unemployment tax at the rate of 6%. Only the first $7,000 of wages are subject to the Federal Unemployment tax. Once an employee’s wages exceed $7,000, there is no further federal unemployment tax liability for that employee.

Depositing Employment Taxes

Employment taxes can be deposited either monthly or semi-weekly. During each year, either of the two schedule deposits can be used, but not both. To determine your payment schedule, you may review IRS Publication 15 (for Form 941, Form 944 and Form 945), or Publication 51 for Form 943.