WHO’S the Boss?
Do you have someone come in to help around the house, such as a housekeeper, nanny, or gardener? If so, that person may qualify as a household employee, which makes you an employer. On the other hand, if the worker is an independent contractor, then you’re not an employer. It’s an important distinction because employers have obligations under the federal employment tax laws.
YOU MAY BE AN EMPLOYER
It all depends on who gives the orders. Independent contractors control how they do their work and usually use their own tools and provide services to the general public. However, if you control both the work and how it’s done, the worker is your employee.
AND A TAX COLLECTOR
You are responsible for withholding and paying FICA taxes (Social Security and Medicare taxes) for a household employee if the wages you pay the employee reach or go over an annual limit ($1,900 in 2014). FICA taxes generally are split down the middle, with the employer and employee paying equal shares. Alternatively, you can pay the whole amount from your own pocket.
You’re not obligated to withhold federal income tax, although you can — and your employee may request that you do. Federal unemployment tax (FUTA) may also apply, depending on how much you pay your houseÂhold employees.
If household employment taxes apply, they’ll be added to your federal income-tax bill. So you might want to start making (or increasing) quarterly estimated tax payments or having more taxes withheld from your paycheck. Otherwise, you may get hit with an underpayment penalty.