Are you paying someone as a caregiver, babysitter, private nurse, or other in-home worker? You may be required to treat that worker as a household employee. To learn more about household employer status, read my previous blog post here.
But if you know (1) you are a household employer and (2) you will pay a household worker $2,100 or more during the year, here is a list of suggested and required steps.
Step No. 1: File for an Employer Identification Number (EIN) with the IRS. You will use the EIN in place of a social security number on future forms. This helps protect your privacy on public or shared documents.
Step No. 2: Secure a Worker’s Compensation policy. Speak to your insurance agent about acquiring a policy as a domestic (household) employer. Each state has its own requirements regarding this.
Step No. 3: Collect employment forms from your worker. These forms include USCIS Form I-9 (required) and IRS Form W-4 (if needed). Also, a state form may be needed if required by your state. Federal and state income tax withholding is generally not required unless you and your worker agree to withhold income tax.
Step No. 4: Establish a state unemployment account, if required.
Step No. 5: Determine a pay schedule: weekly, bi-weekly, bi-monthly, monthly, etc.
Step No. 6: Track hours.
Step No. 7: Calculate wages, track wages, and pay the worker. I suggest you use MS-Excel or another spreadsheet software to keep a running total of wage and tax info. The following taxes must be withheld from the worker’s pay.
- Social security taxes of 6.2% (employee share)
- Medicare taxes of 1.45% (employee share)
- Federal withholding (If your worker requests it, and you agree to withhold.)
- State withholding (If your worker requests it, and you agree to withhold. Make sure to check your state’s withholding requirements.)
Step No. 8: Calculate household employer taxes to be paid at a future date.
- Social security taxes of 6.2% (employer share)
- Medicare taxes of 1.45% (employer share)
- Federal unemployment
- State unemployment
Step No. 9: File quarterly payroll reports. One or more of the following forms may be required.
- State unemployment wage report and payment
- State income tax withholding report and payment, if needed
- Federal estimated tax payments (This is to pay tax liability associated with social security, Medicare, and Federal unemployment taxes.)
Step No. 10: File annual payroll and tax reports. This may include the following forms.
- Federal and state Form W-2 (issued to the worker and filed with appropriate government departments)
- Federal Form W-3 (filed with the social security administration)
- IRS Schedule H (Form 1040) included with the individual tax return (This is where you will report payroll taxes and total wages.)
Because of the various exceptions, exemptions, and case-by-case situations, I suggest you speak with your tax professional to determine your reporting requirements. IRS Publication 926 is also a good resource.