Your Taxes: Know the rules for household employees
It comes as a surprise to many people that if you hire someone to work in your home – think baby-sitter, housekeeper, yard worker, nurse or caretaker – then you are responsible for a variety of things associated with any employer. These include paying their Social Security and Medicare taxes; paying for unemployment insurance; providing a W-2; and filing Schedule H with your tax return if you pay any individual more than $1,700 in a calendar year – or $1,000 or more to any employees in a calendar quarter. If none of this sounds familiar and you hire help for your household, then read on!Let’s talk about who does not need to file the paperwork related to household employees. You are not required to file the paperwork described above if your business hires the individual (obviously, businesses have their own set of paperwork requirements!), or if you hire a business to perform the services, rather than individuals. You are also not responsible to complete paperwork if the employee is under age 18 and does not perform services full-time, such as a student.Assuming that you are personally hiring another individual to work in your household, where do you begin? The process is very similar to a business hiring an employee. They must complete an I-9 form (to prove eligibility to work in the United States) and a W-4 form (to communicate to you, the employer) how much they would like withheld in taxes. Then, each time you pay that employee, you should withhold 7.65 percent from their check to cover their portion of Social Security and Medicare taxes (unless you, as the employer, chose to pay those taxes on the employee’s behalf) as well as any federal or state withholdings the employee has asked you to withhold on their behalf. In all, you should estimate 12-15 percent in taxes and unemployment insurance if you aren’t paying the employee’s portion of Social Security and Medicare, and 20 – 23 percent if you are covering their share of the taxes. In addition to paying your employee, you’ll need to file Colorado Unemployment Insurance reports each quarter (if you are paying out more than $1,000 per quarter), make quarterly tax deposits using the EFTPS system, prepare and mail W-2s to each employee, prepare and mail a W-3 to the Internal Revenue Service, and file an annual Schedule H Household Employment Taxes form. Schedule H is attached to your tax return, and reconciles your annual amounts of Social Security, Medicare, federal withholdings and federal unemployment taxes. Sounds like a lot? To be honest, I didn’t even realize the extent of the requirements until I started digging for my own personal knowledge. I don’t recommend attempting it alone, so if you find yourself hiring a nanny, housekeeper or other regular help, I suggest that you contact a CPA or payroll processor for help, at least until you get a feel for all the deadlines and paperwork requirements.Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.
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