How are the household employee's payroll taxes paid?

BY KATHLEEN WEBB

Most household employers have BOTH Federal and State tax reporting and filing obligations.

Federal Employment Taxes

The Federal employment taxes include Social Security tax, Medicare tax, withheld Federal Income Tax (if applicable), and the Federal Unemployment Tax (FUTA).

The household employer is required to collect the employee's (home health aide, housekeeper, etc.) contribution to Social Security and Medicare taxes. Should you fail to collect, you remain responsible to remit these taxes for the employee. The Internal Revenue Service (IRS) collects the nanny payroll taxes. They are summarized annually on the family (employer's) Form 1040 Schedule H - an attachment to the family's personal federal income tax return.

The household employee's payroll taxes are added to the family's personal income tax liability. Most families with full time staff will make quarterly payments of the nanny payroll taxes using 1040ES estimated tax payment coupons. This protects the family from substantial underpayment penalties at year end should the total family income tax + nanny payroll tax liability be too large.

Deducting federal income taxes and most state income taxes is optional. If income taxes are not withheld by the employer, then the employee is required to make periodic payments of any amounts due.

Many states mandate that you, the employer, provide your employee a Pay Rate Notice at time of hire and on an annual basis thereafter that documents the pay day, the work week, and the hourly rate of pay to your household employee. It also documents the deductions, if any, you are making from his/her payroll.

Most household employers with a full time staff member offer to deduct income taxes for the employee from his/her payroll. This is a convenience to the home health aide or other household staff, relieving them from the need to make quarterly estimated tax payments on their own. Families with occasional or part time staff, such as a weekly housekeeper, in general do not deduct income taxes from the employee's payroll.

State Employment Taxes

Separately, the household employer is typically required to register for and make quarterly payments of state unemployment taxes. These unemployment taxes are paid to the state where the work is physically performed. Many states are moving to require online payroll reporting and unemployment tax payments.

Household employers who are not confortable performing financial transactions on the internet are strongly encouraged to consider one of our premium services (NaniPay or NaniTax Plus) because we would make these online reports and remittances as part of the services.

We offer free telephone consultations - call with your questions and we will be happy to discuss your situation and forward you the appropriate literature for your review. 800.626.4829

Video: Gross Pay v. Net Pay

More Resources:

» Free Tip Sheet: Privately Employing Homecare Workers
» Calculate Nanny Payroll Taxes

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