Frequently asked questions:

Am I a household employer? What does that mean?

Yes, if you have a domestic employee working for you in your home, you are a household employer. Your employee is not an independent contractor. As a household employer, you are responsible for withholding and depositing your employee’s share of payroll taxes (Social Security and Medicare), as well as Federal income taxes if your employee wants such taxes withheld. You are also responsible for paying the employer’s share of payroll taxes, plus Federal and state unemployment taxes.

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How often do I need to pay these taxes?

You must file quarterly state wage reports and pay the related state unemployment taxes (SUTA) on your employee’s gross wages. These reports and payments can be done online.

You should make estimated Federal tax deposits to the IRS throughout the year. A convenient way to do this is by enrolling on EFTPS.gov and paying your deposits online. You can also pay by mailing a voucher with your check.

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Do I have to pay my employee an hourly rate, or can I pay him/her a salary?

Domestic employees are deemed non-exempt employees, which means they are entitled to minimum wage and overtime pay. The minimum wage varies from state to state, and overtime rules vary as well, though overtime is generally considered to be more than 40 hours/week.

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Do I have to provide worker's compensation coverage? What about unemployment insurance?

You are generally not required to provide worker's compensation coverage, however it can vary by state. All states require employers to pay into state unemployment funds, which pay laid-off employees while they find another job. If you terminate your employee (without cause) and s/he claims unemployment benefits, you do not pay more into the state pool, but your unemployment tax rate may increase if you hire another employee.

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What about health insurance for my employee?

Many employers contribute funds toward their employee’s health insurance policy, though you are not required to do so. The contribution – either via paycheck or direct payment to the health insurer – is not taxable to either employee or employer. If the policy is purchased through the Health Insurance Marketplace, you may be eligible for the health insurance tax credit on your personal tax return.

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How does it work if we are in a nanny share with another family?

Each family is considered a separate employer from the perspective of the IRS and the state, even if the care is provided in only one of the homes. As such, each family obtains its own Federal and state tax ids; each family tracks the nanny’s hours, wages and taxes separately; each family pays the nanny separately for the hours s/he worked for that family; and each family withholds and deposits taxes with the IRS and the state related to the wages that family paid the nanny.

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How do I report household employment taxes to the IRS? Are they deductible?

You report your household employment taxes on Schedule H of your personal tax return. You also report the amount of estimated tax deposits you’ve made throughout the year. These amounts should be approximately the same.

While household employment taxes are not deductible on your personal income tax return, there are a couple tax breaks you may benefit from:

Dependent Care Account: Your employer may offer a flex spending account for purposes of setting aside pre-tax dollars to help pay for dependent care expenses. The money you save on this income not being taxed can offset your household employment tax liabilities. Check with your company’s HR department to learn about your enrollment options and to find out what documentation you need in order to claim reimbursement for dependent care expenses.

Child Care Tax Credit: If you don’t have access to a Dependent Care Account, you can claim the Tax Credit for Child or Dependent Care on your personal federal income tax return at year-end.

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