Tax Reporting Requirements for Domestic Help
If you hire -- and pay in cash -- domestic help to cook, garden, clean or perform other duties around the home, you may be required to withhold and pay payroll taxes. There are quarterly and annual threshold amounts that trigger this requirement, with the threshold amounts changing annually.
As an example, the annual threshold for cash wages to domestic help that triggers withholding was $1,700 and $1,800 in 2012 and 2013, respectively. The total amount you must withhold is 15.3 percent of cash wages, of which 7.65 percent is your employee’s share and 7.65 percent is your share. You have the option of not withholding your employee’s share and paying it yourself. If cash wage passes the quarterly threshold, you are required to pay federal unemployment tax, 6 percent up to the designated maximum for that year. Additionally, you must withhold an additional 0.9 percent for Medicare if you pay your employee more than $200,000 in a calendar year.
Throughout the year, withhold the appropriate amount of taxes from your employee’s cash payroll and decide how you will make the tax payments. By January 31 of the following year, obtain an employer identification number. For example, if the tax year is 2013, then you need an EIN by January 31, 2014. By the end of that February, prepare a Form W-2, Wage and Tax Statement, for your employee and give him copies B, C and 2. Send your copy A to the Social Security Administration by April 15. With your federal tax return, file Schedule H, Household Employment Taxes.
Federal Unemployment Tax
The federal unemployment tax is part of a state and federal program that compensates a worker who loses her job. An employer may owe both FUTA and state unemployment taxes or may owe only one or the other. For example, In New York State, you must pay unemployment insurance taxes for any domestic help paid $500 or more annually. In Virginia, you must apply for a "Virginia household employer’s withholding tax account," according to the Virginia Department of Taxation. You can learn about your state's unemployment tax regulations by contacting the state's unemployment agency. If you pay all money owed for FUTA by April 15 of the following year, you may be eligible for a credit of up to 5.4 percent.
If you fail to withhold and submit the correct amount, you could be held liable for the full amount due, in addition to interest and penalties. This could occur at any time in the future if an employee files for benefits years after working for you and it is discovered that you did not withhold or pay the required taxes. If you fail to give each worker a W-2 by January 31 of the following year, you could be penalized up to $50 for each W-2.
Diane Stevens' professional experience started in 1970 with a computer programming position. Beginning in 1985, running her own business gave her extensive experience in personal and business finance. Her writing appears on Orbitz's Travel Blog and other websites. Stevens holds a Bachelor of Science in physics from the State University of New York at Albany.