FREQUENTLY ASKED QUESTIONS FOR NEW HOUSEHOLD EMPLOYERS
Q - As a household employer, do I have to pay taxes on my employee?
A - Yes. As a household employer, you pay taxes that consist of a matching share of Social Security and Medicare (7.65%), Federal and State Unemployment Insurance, and in some instances state-related taxes. These can average around 10 to 12% above your employee’s gross wages.
Q - My friends pay their employees off the books. Can I?
A -
According to IRS Publication 926, the threshold for withholding taxes is $1800 Gross. It is each individual employer’s responsibility to withhold taxes according to this. GTM strongly recommends that you review the tax laws regarding household employment.
Q - Can I treat my household employee as an independent contractor?
A - No. A household employee is considered an employee, rather than an independent contractor. The main reason for this is because you have control over the work arrangement. The employee is working in your home and you typically set the schedule and have ultimate control over the work that is done.
Q - I own a business. Can I put my household employee on my business payroll?
A - No, it is illegal to pay your household employee on your business payroll. A household employee is an employee in your home, not your business and therefore would not qualify you to take the tax deductions which you would be allowed to take with a traditional business employee. Refer to to IRS Publication 926 for additional information.
Q - Should I talk to my employee in terms of Gross pay or Net pay?
A - It’s always best to talk in terms of Gross pay for several reasons:
- Your employer taxes are based on top of the gross wages - making budgeting easier
- Tax tables change on average once a year so there is no guarantee that the net that you agree on with the employee will remain the same
- Overall, it is less costly for you to speak in terms of gross pay, because your employee’s taxes are deducted from her gross wages rather than being added on top of the net.
Q - Can you explain the specifics of a nanny share?
A - According to the IRS, a nanny–share involves two families paying a portion of one salary to a nanny who cares for their children in a group setting. According to the law, both families are considered separate employers and both should pay the employee separately; as well as individually withhold and pay taxes to the appropriate agencies.
Q - Should I have a work agreement with my employee?
A - We highly recommend creating a work agreement in order to document the requirements of the position. A work agreement establishes a clear understanding between the employer and employee regarding the employee’s duties and responsibilities, and all that is expected from both. Lack of a work agreement can contribute to confusion, dissatisfaction and a high turnover rate. For more information, refer to How To Hire A Nanny by Guy Maddalone, and click here for information on GTM's Household Employment Documents.
Q - What if my employee cannot provide documents for the I-9 form?
A - As the employer, it is your responsibility to provide an I-9 form to your employee, within 3 days of hiring. It is also your responsibility to review the documents received from your employee to ensure they are valid and not expired. If your employee is unable to provide the documents needed to support the proof of their work authorization legally, you should not hire them. If you are unsure of the eligibility of your employee, you can always verify the information they have provided using the E-Verify program at www.uscis.gov
Q - Am I required to pay overtime?
A - Yes. According to the US Labor Department, the Fair Labor Standards (FLSA) requires employers to provide overtime pay of one and a half times the regular rate of pay. Most states require that overtime pay be provided for work in excess of 40 hours per week. There are some exceptions to this law, including how live-in employees are handled so it’s important to know the specifics of your own state. In any circumstance, it is in your best interest to clearly define how overtime will be handled in your work agreement or employee handbook. Click here to estimate these costs using GTM's Overtime Rate Calculator.
Q - Am I required to provide vacation or other paid time off to my employee?
A - While vacation and other paid time off is not a requirement, it is a popular benefit provided to household employees and is a major contributor to job satisfaction, according to many nannies. All time off payments should be agreed upon by the employer and employee prior to hiring, and should be clearly defined in both the work agreement and employee handbook.
Q - Do I have to provide workers' compensation insurance?
A - Most states require household employers to carry a workers’ compensation policy depending on whether your employee works part-time or full-time. This type of policy will provide compensation to an employee who is injured on the job. Even if your state does not require it, it is always a good idea to have a policy in place to guarantee you are protected in case of an accident. Regardless of whether it is required, GTM strongly advises you to obtain coverage for your employee. GTM Employment Benefits, LLC is a licensed insurance brokerage that specializes in setting up workers’ compensation policies for household employers. Contact GTM Employment Benefits at (800) 432-7972 x 7213 to explore your options and see if GTM can help you in obtaining this policy. Or click here for a FREE Quote.
Q - What tax breaks do I receive?
A - There are 2 main tax breaks that can offset your employer tax costs. If your are legally employing someone in your home (i.e.: paying on the books), you will be able to take advantage of one of the two following tax breaks:
- Dependent Care Assistance Program (DCAP) – Most companies provide this benefit and allow employees to contribute up to $5000 of pre-tax earnings to a Dependent Care account. You would then be reimbursed these tax-free funds to cover childcare expenses.
- Child and Dependent Care Tax Credit – For those who don't have access to a Dependent Care Account, they can claim the Child and Dependent Care Tax Credit (Form 2441) on your personal income tax return at year-end. You can claim up to $3,000 of the un-reimbursed qualifying child care expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals. The credit can be anywhere from 20% to 35% of your qualifying expenses.
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