Helpful Advice on Taxes and Benefits

If you pay a household worker $1,300 or more in wages during a year, you must pay and deduct Social Security and Medicare (FICA) taxes. You must also report the wages once a year.

Some employers will pay both their share and the employee’s share. For more information, visit the Social Security Administration’s publication on Household Workers.

In addition to FICA and Medicare taxes, employees must also pay federal and, where applicable, state income tax. According to the Internal Revenue Service, you are not required to withhold federal income tax from wages you pay a household employee. They advise you to withhold federal income tax only if your household employee requests you do so and you agree. The employee must give you a completed Form W-4, Employee's Withholding Allowance Certificate.

Employers of domestic employees must pay also state and federal unemployment taxes if they pay wages to household workers totaling $1,000 or more in any calendar quarter of the current or preceding year. The Department of Labor defines a household worker as an employee who performs domestic services in a private home, local college club, or local fraternity or sorority chapter. You can find more information on Federal unemployment tax (FUTA) on the Department of Labor’s Website.

Not every state requires state income tax, and a state’s unemployment insurance rate can vary. Check with your state’s Department of Labor to determine if your state has income tax and what unemployment taxes are required.

When you hire a household employee, it is important to discuss which taxes are being withheld.

Benefits

As with most jobs, employees expect time off for vacation, holidays and illness. Some employers even provide health insurance and other benefits. How you handle it is up to you, depending on your household’s needs. At the time of the interview, be sure to discuss your policies and even put them into writing to avoid future confusion.

The Lindquist Group offers the following counsel on benefits:

• Vacation: The standard is two weeks. Some people offer their employees a week of vacation after six months, and another week at the end of one year of employment. You also may require your employee to take one week of vacation when the family takes its vacation, and the other week at his or her discretion.
• Holidays: Most household employees get all major American holidays off, like New Year’s Day, Memorial Day, Independance Day, Labor Day, Thanksgiving and Christmas. Your applicant may wish to negotiate other days as well as certain religious holidays.
• Sick days: If your nanny or housekeeper has a raging cold, you most likely do not want her around your family. Paid sick days are an incentive to stay away and recuperate. Some employers provide up to five paid sick days a year. Base your policy on your generosity and ability to identify temporary assistance for sick employees.
• Health insurance: Many household employees do not have health insurance, so this may be an added incentive for hiring. If you decide to provide this to your employee, you may elect to split the premium with him or her, or offer it instead of a higher salary.
• Other things you may wish to provide:
• Car insurance
• Health club membership
• 401(k)/retirement plan