Do I have to pay payroll taxes for my cleaning person, nanny, gardener, pet sitter, or home nurse?
It seems like everywhere we turn there's a tax for something. We get taxed on our income, pay taxes on our purchases, and even pay taxes for part-time helpers. Learn more about the "nanny tax" and how it may impact you for your household employees.
Although it is often called the “nanny tax”, this tax does not only apply to parents of children for whom a babysitter is hired. According to the IRS, the “nanny tax” applies to anybody who pays $2,600 or more in a calendar year or $1,000 in any quarter (amounts as of 2023) to any one household employee. Household employees include housekeepers, nannies, gardeners, pet sitters, senior care aides, drivers, tutors, etc...anybody who fits the description of an employee versus an independent contractor.
The main key in determining if you're required to pay the “nanny tax” is whether you've hired an employee, or an independent contractor.
Employee vs. Independent Contractor
Workers are generally considered employees if they meet specific job descriptions and duties. It doesn't matter what tasks the employee does, if they're part-time or full-time, or how you found them. If they meet the $2,600 figure and you control what work they do...and provide instructions on when to do it...you're their employer.
For example, if you have a gardener who brings all his own equipment, comes at his own timing, and owns his own business - he's not your employee; he's an independent contractor. You're off the hook! But if this same person comes to your house at specific times you request, uses your tools and completes the job per your specifications, then you have a household employee.
Examples of Employees (only if pay exceeds the limits mentioned above):
- Housekeeper - your home is cleaned at specific, agreed-upon times by an individual using your cleaning equipment. The cleaner doesn't own a cleaning business, but works for several families (tip: if you hire a cleaning service company, you don't have an employee)
- Nanny - a friend cares for your child(ren) at your home every day at set times, following your guidelines about feeding, napping, and outings. Or a friend picks up your kids from school, takes them to their activities, and makes their dinner.
- Nurse - you have an individual caregiver come to your home at specific times to take care of your spouse.
Examples of Independent Contractors:
- Child care provider - an individual who cares for your child(ren) in his/her own home, and has control over things like snacks, play time, etc.
- Contractor - you hire a worker to re-do the flooring in your home and that worker is free to come and go as he/she pleases, and uses his/her own tools.
- Pet sitter - your dog or cat stays at a friend's home or care facility, providing food and treats for your dog or cat.
- Nurse care - you hire a company that sends nurses to your home to care for your loved one while you're at work. The nurses vary from day-to-day.
There are many examples of different types of people you may hire for different jobs. If you're unclear on whether these folks are employees or independent contractors, feel free to contact us. We’re here to help!
Anybody who fits the description of being a household employer is required to ensure employment taxes are paid. This means withholding for FICA (social security and Medicare).
Generally the employer pays 1/2 of the 6.2% social security and 1.45% Medicare tax, and the employee pays an equal 6.2% social security and 1.45% Medicare tax. So a total of 15.3% must be withheld.
For most people, this often brings upon the need for a payroll company to handle these withholdings, which means more expenses. Care.com does a great job of helping with this, as far as describing and providing the payroll service.
To pile on even more, federal and state unemployment insurance may be a requirement as well. So the costs can add up quickly.
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