If you’ve hired a house cleaner, gardener, or other household employee that isn’t an independent contractor, you may be liable for what’s called the “nanny tax”—even if you haven’t technically employed a nanny.
You aren’t required to withhold federal income taxes when you hire a household worker, but you can choose to do so if requested by the worker (in which case, they must fill out a W-4 form). You may, however, be required to withhold Social Security and Medicare (FICA) taxes, along with paying federal unemployment (FUTA) tax.
In addition to federal income and other taxes, you may also be obligated to pay state taxes.
Tax thresholds for 2022 and 2023
FICA taxes
If your household worker earns $2,400 or more in 2022 (not including food and lodging), you must withhold and pay FICA taxes. In 2023, this amount will increase to $2,600. Once you reach that threshold, note that all wages will be subject to FICA taxes—not just the excess.
Note that you do not have to withhold these taxes for workers under the age of 18 whose primary occupation does not involve childcare, such as a part-time student babysitter.
Employers and household workers may each have FICA tax obligations—but as an employer, you are held responsible for withholding your worker’s FICA share while also paying a matching amount.
FICA tax is divided between Social Security and Medicare, with the Social Security and Medicare tax rates being 6.2% and 1.45%, respectively, for both employers and workers. As an employer, you have the option to pay your worker’s share of wages for these tax purposes. That said, your payments will be treated as additional income for your worker’s federal taxes, so they will need to be included as wages on the W-2 form.
FUCA taxes
If your household worker earns $1,000 or more in any calendar quarter (not including food and lodging), you must also pay FUTA tax. This tax applies to the first $7,000 of paid wages and is only to be paid by the employer.
Paying your household worker taxes
To pay these household worker obligations, you will need to increase your quarterly estimated tax payments or increase withholdings from wages—as opposed to making an annual lump-sum payment.
Unless you own your own business, you won’t have to file employment tax returns as the employer of a household worker, even if you’re required to withhold or pay tax. This is because employment taxes are reported on your tax return on Schedule H (Form 1040).
In your tax return, include your employer identification number (EIN). If you don’t have one, you must file a Form SS-4 to get one. (Note that this is not the same as your Social Security number.)
If you own your business as a sole proprietor, however, you will include household worker taxes on the FUTA and FICA forms filed for your business using your sole proprietorship EIN.
Keep detailed records
Once you pay your taxes, be sure to keep all related records for at least four years following the due date of the return or the date the tax was paid—whichever is later.
In your records, include the following:
- Worker’s name
- Address
- Social Security number
- Employment dates
- Amount of wages paid
- Amount of taxes withheld
- Copies of any forms filed
If you need assistance understanding and applying tax rules to your situation, contact us to work with a knowledgeable tax advisor.