Tax Obligations

This page provides background on hiring people to work in your home. It also provides information that will help you to meet your tax obligations. This page includes

Hiring Household Workers
Employer Identification Number (EIN)
Form I-9
Other Tax Related Information

The information for this page came from the respective government websites, with direct links to these websites.

Hiring Household Workers

The following information is adapted from the web site of the Social Security Administration. http://www.ssa.gov/pubs/10021.html Check this website at least every six months to be aware of changes.

Your personal assistant (PA) will be eligible for Social Security and Medicare some day. But your PA only will get it if you deduct Social Security and Medicare taxes from his or her wages, pay the taxes to the Internal Revenue Service (IRS) and report the wages to the Social Security Administration.

When you report wages earned and pay the taxes, your employee gets credits toward all available Social Security benefits and Medicare coverage.

Wages Must Be Reported

If you pay a household worker $1,400 or more in cash wages during a year, you must deduct Social Security and Medicare taxes. You must report the wages once a year. This includes reporting any cash you pay to cover the cost of the employee’s transportation, meals or lodging. Failure to report the wages on time may mean you’ll have to pay a penalty in addition to overdue taxes. Be sure to check the website for the amount of cash wages that are taxable in a given year.

Are All Household Workers Covered?

When you pay a household worker $1,400 or more in cash wages during the year, the work is covered by Social Security (note this level may change for any year; please check with Social Security for current levels). However, special rules apply in the following situations.

Earnings for household workers (such as baby sitters) under age 18 are exempt from the Social Security tax unless household employment is the worker’s primary occupation.
If your child who is 21 or older is hired to perform household work for you, his or her earnings are covered by Social Security. Household work done by your child who is under age 21 is not covered. Household work performed by your parent may be covered in certain situations.

Contact any Social Security office for more information.

Reporting the Wages

Contact the IRS regarding reporting requirements or forms. The IRS will tell you how to complete forms and when and where to file them. Meanwhile, here are a few highlights you may want to know.

Keeping records. For Social Security purposes, you need the name, address and Social Security number of each worker and the amount of wages paid. Copy the Social Security number directly from the individual’s Social Security card. If an employee does not have a card, he or she should apply for one at any Social Security office.
Deductions for Social Security and Medicare taxes. As an example, the 2003 Social Security tax rate, for both employees and employers, is 7.65% on wages up to $87,000. Of that rate, 6.2% pays for Social Security benefits and 1.45% finances Medicare’s hospital insurance program.
Filing your report. You use your own federal income tax return (IRS 1040) to report wages over $1,400 (or the current year's level) that you paid a worker. As the employer, you pay your share of the Social Security and Medicare taxes—another 7.65% for 2003, along with the taxes you withheld from the employee’s wages, when you file your return.
Submitting a W-2 after the year-end. You also must give your household employee copies B, C and 2 copies of IRS form W-2 (Wage and Tax Statement) by January 31 after the year in which wages were paid. Send copy A to the Social Security Administration by the last day of February. You can obtain this form and the instructions for completing it by contacting any IRS office.

Remember, if you don’t report the wages for your employee, he or she may not have enough credit for Social Security benefits, or the amount of the benefit may be less.

For More Information

Visit the Social Security web site at http://www.ssa.gov for more information about Social Security. You also can call Social Security at 1-800-772-1213. Questions can be answer by phone between 7 a.m. and 7 p.m. on business days. It also provides information by automated phone service 24 hours a day. If you are deaf or hard of hearing, you may call the TTY number, 1-800-325-0778 between 7 a.m. and 7 p.m. on business days.

Employer Identification Number (EIN)

When you have employees you will have to have an EIN to report their earnings and taxes. The Internal Revenue Service (IRS) issues this number to you. You use this number when you file quarterly and yearly employer’s tax forms. You can apply for an EIN by completing Form SS-5. The form is available at local IRS and Social Security offices or on the Internet at http://www.irs.gov/pub/irs-pdf/fss4.pdf. If you apply for but do not receive your EIN before you must make a deposit, make your deposit on time to the Internal Revenue Service. In a letter explain the kind of tax, the period you are reporting for, and the date that you applied for your EIN. Be sure to include your name and address.

Form I-9

On the first day of work you should have your employees complete an I-9 form from the Immigration and Naturalization Service. This form certifies that the person you are hiring is legally entitled to work in the United States. All employees must fill out this form. See Record Keeping. The form can be found at http://www.uscis.gov/graphics/formsfee/forms/files/i-9.pdf.

Other Tax Related Information

A search on the Internet for “household employee taxes” will yield a long list of web sites that are useful. Below are two sites that provide more information. On some of the sites you can download the various report forms that you might need.

NannyTax USA This web site contains a lot of information about hiring an employee in your home. It discusses the taxes you are required to withhold and pay. It gives definitions, and links to the reporting and other forms you will need. It also provides a step-by-step do-it-yourself guide. http://www.householdemploymenttaxes.com
Hiring a Household Employee This is an Internal Revenue Service site. It covers paying employment taxes including the forms required. It covers reporting wage and non-wage compensation. It provides tax-reporting forms that you can download. http://www.irs.gov/pub/irs-pdf/f1040sh.pdf

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