Anyone who hires private staff to work for their household, estate or family should be aware of the tax and employment laws that apply to you as an employer. Hiring household employees comes with certain responsibilities and obligations that you should consider before deciding to move forward with hiring staff.
Payroll Taxes
As an employer of household employees, you are required to withhold and pay Social Security and Medicare taxes (FICA) for your employees if you pay them more than $2,300 in 2021. You may also have to withhold and pay federal income tax for your employees if they ask you to do so or if you pay them more than $4,400 in 2021. In addition, you may have to pay federal unemployment tax (FUTA) if you pay more than $1,000 in wages to your household employees in any calendar quarter.
You also have to comply with any state and local payroll tax requirements that apply to your location. You should report these taxes on Schedule H of your Form 1040 and pay them with your income tax return. You should also provide your employees with Form W-2 at the end of the year to report their wages and taxes withheld.
Employment Laws
As an employer of household employees, you are subject to various federal, state and local employment laws that protect the rights and interests of your workers. For example, you have to comply with the minimum wage and overtime laws, which vary depending on your state and locality. There are also laws regarding workers’ compensation, unemployment insurance, sick leave, family leave, health insurance, anti-discrimination, and labor relations.
Liability Risks
As an employer of household employees, you are exposed to potential liability risks if your employees cause damage or injury to themselves, others, or your property while performing their duties. For example, if your nanny accidentally drops your baby or if your driver gets into a car accident while driving your vehicle, you could be held responsible for the medical bills, legal fees, and other damages that result from these incidents. To protect themselves from these risks, many of our clients choose to obtain liability insurance coverage for their household employees.
Tax Benefits
As an employer of household employees, you may be eligible for certain tax benefits that can help you offset some of the costs of hiring private staff. For example, if you hire a nanny or a caretaker to care for your child or a dependent who is physically or mentally incapable of self-care, you may be able to claim the child and dependent care credit on your income tax return. This credit can reduce your tax liability by up to 35% of the qualifying expenses that you pay for the care of your eligible dependents, up to a maximum of $3,000 for one dependent or $6,000 for two or more dependents. You may also be able to use a flexible spending account (FSA) or a health savings account (HSA) to pay for some of the medical expenses of your household employees on a pre-tax basis.
Hiring private staff can be a great way to enhance your lifestyle and provide comfort and convenience for yourself and your family. By following the tax and employment laws that apply to you as an employer, you can avoid potential problems and enjoy the benefits of having reliable and trustworthy help at home.
