I’m not rich. I don’t own a mansion. I don’t have a maid (that would be me). I don’t have a chauffeur (that’s me), a gardener (still me), or a chef (also me).
But I’ve had household employees. Chances are, you have, too.
You see, household employees are something that we associate with the rich and famous. But they’re surprisingly common. Any person who does household work is a household employee if you can control what will be done and how it will be done. This can include babysitters, nannies, home health aides, maids, gardeners, drivers and the like. It doesn’t matter if they’re part-time or full time, whether they live with you, or even how – or how well – you pay them.
Before you panic, here are a few exceptions:
- If the worker controls how the work is done, the worker is not your employee but is self-employed. Other hints that a worker is self-employed: he or she provides his or her own tools and offers services to the general public in an independent business. So, the kid who mows your lawn with his mower – and also does your neighbor’s lawn – he doesn’t count. But the gardener who uses your tools at your direction? Likely counts.
- A worker who performs child care services for you in his or her home generally is not your employee. But (and it’s a big but) a worker who watches your own child in your own home? Probably a household employee.
- If an agency provides the worker and controls what work is done and how it is done, the worker is not your employee. Again, there’s a but. If the agency merely helps you choose an employee who then provides services at your direction, likely a household employee.
If you are deemed to have a household employee, there are tax rules. On your end, so pay attention. You may be subject to withholding on wages. You may need certain kinds of insurance (worker’s comp, unemployment). And on the federal side, you’ll need to file a Schedule H if any of the following apply:
- You paid any one household employee cash, check, money order, or cash equivalent of $1,700 or more in 2010. Do not count amounts paid to an employee who was under age 18 at any time in 2010 and was a student.
- You withheld federal income tax during 2010 at the request of any household employee.
- You paid total wages of $1,000 or more in any calendar quarter of 2009 or 2010 to household employees.
You should refer directly to Schedule H, Household Employment Taxes (downloads as a pdf) for more details, including a helpful “interview” of sorts to see if you need to file.
Be aware that the rules for household employees can be tricky (think “Nannygate”) and it’s not hard to get caught up in them. Ask your tax professional if you’re not sure how to proceed.
And here’s one last word (ok, words) on the subject: a lot of childcare providers who are properly household employees don’t like to be paid that way or treated as a household employee. Here’s why you should anyway:
- If you don’t pay your childcare provider above board, you lose the benefit of the child care credit. That’s a huge big deal.
- If you don’t pay your childcare provider above board, you can get into trouble with the IRS. Who do you think gets nailed in that situation? Yes, you. And the IRS doesn’t care that your nanny threatened to leave if you put her on the payroll.
- If there’s an accident on your premises involving your household employee, what do you think his or her lawyer is going to tell him or her? Right, that you’re the employer. There’s usually more money that way because of insurance. I’m not kidding.
- Finally, and throw virtual tomatoes all you want but I am just going out and saying it… There are lots of ways that you can “make up” for the taxes to your employee, including grossing up wages. If your employee still balks, I wouldn’t trust him or her. Trust me, I’ve heard every sob story in the books from “I’ll lose my Social Security” to “I’m on unemployment and my former boss doesn’t know I’m doing this.” Why would you want someone in your home, watching your children – someone you’re putting a lot of trust in – who refuses to be honest with the state, the feds, the IRS, or his or her current employer? As a mom, it’s not worth it to me. Nobody likes to pay taxes. I get it. But we do anyway because it’s the law. As for my household? We paid our nanny with the proper withholding even though it was a big pain in the butt for both of us. She understood and I appreciated her openness. Nearly five years later, she’s still our occasional babysitter (but not a household employee). I trust her. I trust her judgment in my home and I trust her with my kids. That’s worth a few lousy dollars here and there.
Interesting and provocative. I like it.
Two thoughts about childcare providers:
1. If a childcare provider wanted to (a) not be treated as an employee and (b) work in the child’s home, what advice would you give him/her?
2. That looks like a nice loophole courtesy of the high school babysitter lobby 😉
Nannytaxes can seem like a nightmare, but if you hire a company like I did, you definitely don’t have to worry about a thing. I use GTM Payroll Services- gtm.com. I’m in compliance because of them. Another thing to think about is Worker’s Compensation. GTM set that up too – now we’re protected if my nanny gets hurt while working in our home.
There are many things to think about when hiring a household employee. Talk to professionals like I did – it saved me so much time and hassles.
Ralph:
Can you imagine a provider saying to a working parent, “OK, I’ll be over at 10 today to stay with Johnny, and I’ll be leaving at 2”? That’s essentially what it would take for the relationship to be considered anything other than employer/employee – the provider would have to be able to define the terms and conditions under which he/she would work.
The IRS has a good description on its Web site:
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
The biggest problem that I run into (one that I wrote about on my blog last year) is the opposite – nannies who want to be paid as employees but whose employers don’t want to treat them as such.
I have to agree this whole topic is very msiunderstood. I recently told a friend in very balck and white thsi is how is works. If you are going to hire a Nannny use an agency. Make sure this person is who you think they are make sure you have indeed hired a noteable person not a future disaster. Also in no uncertain terms use a payroll company. IT IS THE LAW TO PAY TAXES. The penalties will far outweigh the cost if you get caught! What if she leaves and goes to collect unemployement YOU WILL BE CAUGHT. What if she files taxes naming you as employer. YOU WILL GET CAUGHT. is it worth it????? There are great agenices and internet great one is Nannies4 Hire and a great payroll company is GTM.