Tax Topic

Household Employees

The Social Security and Medicare wage threshold for household employees continues to be $2,000 for 2016. This means that if you pay a household worker (nanny, housekeeper, landscaper, groundskeeper, etc, but see link below for definition) cash/check wages of $2,000 or more, that worker is considered your employee, and you will have to report and pay Social Security and Medicare taxes on that employee's 2016 wages. If you do not report the wages on time, you may have to pay a penalty in addition to the overdue taxes. To file the various tax returns, including employment tax returns, you need an Employer Identification Number (EIN).

As the employer, you pay your share of the Social Security and Medicare taxes, along with the taxes you withheld from the employee's wages, when you file your own tax return. The 2016 Social Security tax rate is unchanged at 6.2% for employers and 6.2% for employees on wages up to $118,500. The Medicare tax rate is unchanged at 1.45% of all wages for each of the employer and employee. You must also provide annual W-2 copies to your employee and the IRS by January 31. In Washington State, you also must have a business license and pay unemployment insurance (and possibly workman's comp.)

We can give you some direction so that you can do all of this yourself. The difficult part is understanding the differences between the Federal EIN, payroll taxes (employee portion and your portion), the State business license, and State employment agency payroll taxes; but once you get it straight, it's not too bad. On the other hand, we highly recommend www.myhomepay.com as a company that specializes in helping folks stay compliant with the mid-year household employee requirements. http://www.myhomepay.com/

For more information, see Social security and Medicare wages in IRS Publication 926, Household Employer's Tax Guide: http://www.irs.gov/pub/irs-pdf/p926.pdf

Here is the IRS definition of household employee: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Hiring-Household-Employees

Here is an IRS link to information on how to apply for an Employer Identification Number (EIN).: http://www.irs.gov/taxtopics/tc755.html

Here is a link to the Social Security Administration's take on household employees: http://www.ssa.gov/pubs/EN-05-10021.pdf


< Back to Tax Topics page