If you hire people to work in your home -- such as nannies, private nurses, or housecleaners -- then you’re a household employer. You’re responsible for filing the proper taxes and getting the right paperwork to your employees if you pay them over $2,000 for the year (as of 2016).
Now that it’s tax season, be sure you’re providing your domestic workers with the proper paperwork. Start with the following information to ensure a stress-free tax season.
Paperwork to Give to Your Domestic Worker
At tax season, you will have to provide your domestic workers with a W-2. This is the tax form that shows how much money you paid to them throughout the year and how much taxes were withheld from their paycheck.
W-2s should be filed for each domestic worker whom you pay Social Security and Medicare wages of $2,000 or more (2016), or those of which you withhold income tax from.
W-2s must be filed and given to your employees by January 31st following the end of the tax year. For example, any wages you paid out to employees during 2016 must be reported on a 2016 W-2 and given to your employees or postmarked by January 31, 2017.
Your employees should receive Copies B, C, and 2. You will send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the Social Security Administration (SSA) by January 31st. You can, however, file electronically.
Note: If an employee stops working for you during the year, you don’t have to wait until the end of the year to file and send their W-2, as long as you won’t pay them further compensation during the year. You can instead file the form after you make the final wage payment.
Paperwork You Need to File
Filing and sending your employees their W-2 is only half your job. You also have to report all wages you pay to household employees and calculate employment taxes due, as well as Federal income tax you may have withheld, on a Form 1040 Schedule H form. Do this if you pay:
- Social Security and Medicare wages of $2,000 or more.
- Wages from which you withhold federal income tax.
- FUTA wages.
Your Schedule H is due with your income tax return by the due date for that year. In 2016, the due date is April 18, 2016. If you receive an extension on your income taxes, you will also receive an extension on your Schedule H form.
If you aren’t required to file an income tax return, you can file the Schedule H on its own.
What You Need to File Taxes
In order to file the abovementioned forms, you will need to know your employee’s name and social security number (SSN) exactly as it appears on their social security card. You will need to gather this information before you begin paying them wages. As an employer, you may photocopy your employee’s social security cards, but you do not have to.
You will also have to keep detailed wage and tax records to ensure you are filing using the proper amounts. Keeping up-to-date records will also save you time come tax season since you’ll already have all the numbers in front of you for filing.
On paydays, record:
- The date
- Regular and overtime worked in the week (or each week)
- Your employee’s total wages (both cash and noncash)
- Any Social Security tax you withheld from employees
- Any Medicare tax you withheld
- Any federal income tax you withheld
- Any state income and/or employment taxes you withheld
Don’t Forget your State Obligations
Most household employers must also make regular state tax filings, both for unemployment tax purposes and to remit state income and/or employment taxes you may have withheld.
The reporting schedule varies by state; however, it is typically quarterly. This is important because when you file these taxes late by waiting until the end of the year you will incur both penalty and interest expense.
If you’re ever unsure if the people you’re hiring are considered domestic workers or you need personalized advice, talk to a professional. A professional can also help you save time and ensure you get the right information to the right employees when needed.