Do you pay someone to work at your home? Do you control what work is done and how it is done? Maybe you have one of the following types of workers.
- Private Nurse
- Health aid
- Maid or cleaning worker
- Yard worker
Families have hired caretakers, private nurses, or health aids to care for a loved one. Self-employed individuals often hire a housekeeper or someone to clean their house. Parents have hired a babysitter or a nanny for their children.
If you hire someone (who is not an independent business) to work for you in your home, you may have made yourself a Household Employer.
Thankfully, the Internal Revenue Service (IRS) provides some relief for household employers. If the worker receives wages under $2,100 (for 2019), the household employer is not required to withhold and pay social security and Medicare taxes or issue the worker a Form W-2 at year end.
But you still need to monitor that threshold very carefully because if you pay total wages over $1,000 to one or more workers in a calendar quarter, the IRS requires to you pay federal unemployment tax of 6% on the first $7,000 of wages of each worker (unless a credit applies to reduce the 6% to 0.6%). In addition, your state may require you to pay state unemployment tax. This is true for Wisconsin; for wages over $1,000 to one or more workers in a quarter, you are required to pay tax of 3.25% (new employer rate) on the first $14,000 of wages of each worker.
If you meet the wage threshold to pay unemployment taxes, you’ll need to establish a state unemployment account and file IRS Schedule H with your individual tax return.
What happens, though, if you know the worker will be paid more than $2,100 during the year? You have additional requirements. I will explain the specifics in a future blog post.
Also, keep in mind that exemptions to federal and state requirements may exist if you pay wages (even if more than $2,100) to the below individuals.
- Your spouse,
- Your child under the age of 21,
- Your parent, or
- Any employee under the age of 18.
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.