Is a Household Employee Tax Deductible? Is a Household Employee Considered Self Employed?
Household Employees
If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes (FICA), pay federal unemployment tax (FUTA), or both.
Workers Who Are Household Employees
A household employee is an employee hired to perform work in or around your home. The worker is an employee if you can control both what and how work is done. It does not matter whether the work is full-time or part-time or that the worker was hired through an agency or association. It also does not matter whether the worker is paid on an hourly, daily, or weekly basis, or by the job.
Note: If the worker usually provides his or her own work tools and offers services to the general public, he or she is an independent contractor and not a household employee.
Household Workers
Some examples of workers who do household work include the following.
- Babysitters age 18 or older.
- Housekeepers.
- Caretakers.
- Maids.
- Domestic workers.
- Nannies.
- Drivers.
- Private nurses.
- Health aides.
- Yard workers.
- House cleaning workers.
Workers Who Are Not Household Employees
If only the worker can control how the work is done, the worker is not a household employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public as an independent business. A worker who performs child care services in his or her home generally is not a household employee.
A worker hired through an agency is not an employee if the agency is responsible for who does the work and how it is done.
Household Employment Taxes
If you have household employees, you must file Schedule H (Form 1040), Household Employment Taxes, to report FICA tax, FUTA tax, and federal income tax withholding (if any).
Form W-2 must be filed for each of your household employees who were paid Social Security or Medicare wages of $2,300 (2021) or more, or wages of any amount if federal income tax was withheld.
If you are required to file Schedule H (Form 1040) with your 2021 individual tax return you must obtain an Employer Identification Number (EIN) by January 31, 2022.
FICA
The Social Security tax pays for old-age, survivors, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance. Both you and your household employee may owe Social Security and Medicare taxes. For 2021, the employer and employee share is 7.65% (6.2% for Social Security tax and 1.45% for Medicare tax) of your employee’s FICA wages. You are responsible for remitting both your employee’s and your share of the taxes. Typically, your employee’s share is withheld from his or her wages and submitted with your payment.
Calculating Fica Taxes
FICA taxes on Social Security and Medicare wages paid to your household employees are calculated by you.
If you pay your household employee cash wages of $2,300 or more in 2021, all cash wages you pay to that employee in 2021, up to $142,800, (regardless of when the wages were earned) are Social Security wages and all cash wages are Medicare wages. However, any non cash wages paid do not count as FICA wages.
If you pay your employee less than $2,300 in cash wages in 2021, none of the wages are FICA wages and neither you nor your employee will owe FICA taxes on those wages.
Cash Wages
Cash wages include wages paid by check, money order, etc. Cash wages do not include the value of food, lodging, clothing, and other noncash items you give your household employee. However, cash you give your employee in place of these items is included in cash wages.
Wages Not Counted
Do not count wages paid to any of the following individuals as FICA wages.
1) Your spouse.
2) Your child who is under age 21.
3) Your parents.
Exception: Count these wages if your parent cares for your child who is either under age 18 or has a physical or mental condition that requires personal care by an adult, and your marital status is either divorced, widowed, or living with a person whose physical or mental condition prevents him or her from caring for your child.
4) An employee under age 18 at any time during the year.
Exception: Count these wages if providing household services is the employee’s principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.
FUTA
The federal unemployment tax is part of a federal program that pays unemployment compensation to workers who lose their job. Like most employers, you may owe both the federal unemployment tax (FUTA) and a state unemployment tax. The FUTA rate is 6% of your employee’s FUTA wages. However, you may be able to take a credit of up to 5.4% against FUTA tax, resulting in a net tax rate of 0.6%. Note: FUTA tax is not withheld from employee’s wages. You must pay FUTA from your own funds.
FUTA Wages
Calculate the FUTA tax on FUTA wages paid. If you pay cash wages to all your household employees totaling $1,000 or more in any calendar quarter of 2020 or 2021, the first $7,000 of cash wages you pay to each household employee in 2021 is FUTA wages.
Do not include cash wages paid in 2021 to any of the following.
- Your spouse.
- Your child who is under age 21.
- Your parents.
If your employee’s cash wages reach $7,000 during the year, do not figure FUTA tax on any wages paid to that employee during the rest of the year.
State Employment Taxes
If you do not need to pay FICA or FUTA tax and do not choose to withhold federal income tax, you may still need to pay state unemployment tax or carry workers’ compensation insurance.
Federal Income Tax Withholding
You are not required to withhold federal income tax from wages you pay a household employee. You should withhold federal income tax only if your household employee asks you to withhold it and you agree.