The concept of household employees seems completely foreign to most people. I think it is a term that people have not heard of, but it applies to more people than you think. Here is a simple definition: a household employee is someone that is hired to do household work within your residence and qualifies as an employee. There are two considerations here that need detailing:
- Whether the person is an employee or an independent contractor
- The determination of whether they are a regular employee or a household employee.
Let’s start with the biggest one, employee vs independent contractor. The IRS has a good amount of content out there on this subject that you can reference but it is still up to you to make the determination. There are consequences to misclassifying so you will want to get it right. My colleague, KC Kolb, has written a great blog here that breaks down these two categories and how you can make the determination between employee vs contactor. You should also note that the reporting for tax purposes for both the person providing the work and the person performing the work is different. An employee will receive a W2 which has tax withholdings for him/her and the employer files payroll reports, pays its share of payroll taxes and issues the W2. In an independent contractor situation, the contractor will instead receive a Form 1099 that reports his/her income that is filed by the person that hired them. The contractor will then report this income on his/her tax return or business tax return while also paying self-employment tax. You will need to do further research or consult a tax adviser on how to complete this reporting.
If you have determined that the employee category and not the independent contractor category fits your situation, you need to next determine if you have a regular or household employees. The first clue to having a household employee is whether the employee is performing the services at your residence. Examples of these services would be childcare, cleaning, health services, yard work, etc. Now just because you have a nanny, or a nurse come to your house to assist you does not mean you have a household employee. Yes, they are performing services in your home, but you must keep in mind the employee versus contractor determination. If you hire an agency that provides the worker and controls the worker, then the worker is an employee of the agency, not you. You are simply hiring the agency and would not have a household employee. Now if you hire a nurse that is not going through an agency and you have the control over the work, then you have a household employee. See the difference?
So, you have determined you have a household employee, now what? You guess it, more special reporting just like employees and contractors. However, this is a whole other blog topic. Please go to this blog that another one of my colleagues wrote regarding this. (Please note that this blog was written in 2017 so a few of the numbers may need to be adjusted for inflation).
Contact us with any of your tax questions and concerns. For more information on how Henry+Horne can help you with all of your tax needs, including defining household employees, check out our Accounting Services page.
Kelsey L. Phillips, CPA