With the rise of COVID-19, many families have had to switch to online or home school learning for the safety and wellbeing of their children. Kudos to all of the parents out there right now – I cannot begin to imagine the hardships and challenges this year must have brought. One choice that many parents made was to hire an in-home teacher for their children; however, this could lead to some tax consequences.
Household employees are considered “housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee” per the IRS website. These household workers are your employees if you can control the work they do and how they do it. In the case of an in-home teacher, parents normally can control how the worker performs the work; therefore, they would be considered a household employee.
If you have a household employee, you just became a household employer. What does this mean? If you pay this employee more than $2,200 over the course of the year, you would need to pay the employee a wage and pay the payroll taxes (Social Security and Medicare) for both the employer portion (yourself) and the employee portion (the teacher). If you do not withhold the employee portion from the worker’s pay, you would be responsible for it. Having an employee also means you would need to file a Form W-2 for the employee as well as a Form W-3.
All this information gets reported on a Schedule H – Household Employment Taxes that gets filed with your annual Form 1040 – Individual Tax Return. You have the option to either make payments throughout the year for the payroll tax withholdings or pay with the 1040 at the end of every year. Paying at the end of the year may result in penalties and interest, so make sure to consult your tax advisor on the correct payment plan for your scenario. In addition, state and local wage reporting requirements may apply.
As if there wasn’t enough going on this year, an in-home teacher may add to the tax reporting requirements happening in your life. You can see all the rules of household employees here. Feel free to reach out to a Henry + Horne tax professional to see if any of these rules apply to you.
KC Kolb, CPA