Updated 22 December 2020
Every year HomeWork Solutions prepares a "what's new or changed" roundup of household employment tax laws and benefit information.
HOUSEHOLD EMPLOYEE 2021 WAGE BASE:
The IRS annually reviews, and adjusts as necessary, the wage payment threshold that obligates a family to pay Social Security and Medicare taxes and issue employees W-2 forms. This threshold will increase to $2,300 for 2021.
TAX ADVANTAGED HEALTHCARE OPTIONS:
The IRS allows an employer to reimburse healthcare costs to their employee tax free via two Healthcare Reimbursement Schemes, subject to program guidelines. Qualified Small Employer Healthcare Reimbursement Arrangement is capped at $5,300 for individuals of $10,700 for a family in 2021. The Individual Coverage Health Reimbursement Arrangement has no cap, but employers must ensure that their plan meets affordability rules. For either HRA, the employer must have a written plan (we have you covered there) and the amount of reimbursment offered must be noted on the W-2 form to remain tax free.
> Visit our partners at Take Command Health if you are interested in HRA Administration
TAX FREE TRANSPORTATION FRINGE BENEFIT
Employers may provide a mass transit tax free reimbursement of up to $270 monthly to their household employee.
PAID SICK AND FAMILY LEAVE LAWS:
Fourteen states plus Washington, DC now require some from of paid sick leave, safe leave, for family medical leave. Some states have created Paid Family and Medical Leave programs funded by payroll taxes while others have have advanced regulations that offer PAID leave to employees of smaller employers (generally 10 or more employees) and UNPAID job-protected leave to employees of smaller employers. In general these laws allow time off to deal with both the employee’s illness and medical appointments and that of family members. Most laws require employees to make a reasonable effort to schedule paid leave so as not to unduly disrupt the operations of the employer – in other words notice of medical appointments should be ample and, when possible, be scheduled close to the beginning or end of the day. Read more about paid leave laws in your state.
Further, Congress has just extended the eligibility period of tax credits for qualified paid leave under the Families First Coronavirus Response Act (FFCRA) through March of 2021. The credit covers up to two weeks (max 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis.
The FFCRA credit also covers up to two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay if the employee is unable to work because of a bona fide need to care for an individual subject to quarantine (pursuant to Federal, State, or local government order or advice of a health care provider), or care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor.
Lastly, the FFCRA Credit covers (for those employed at least 30 days) an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.
Note that Congress did not make FFCRA paid leave mandatory in 2021, but employers incentivized to provide it and use the tax credit to be reimbursed.
2021 MILEAGE REIMBURSEMENT
The 2021 IRS mileage reimbursement rate is 56 cents per mile, down 1.5 cents from the prior year. Business use for a household employee may include running errands for the family and transporting children or a senior to appointments, activities and school. Routine commuting between your home and place of work is NOT considered business use, and is not typically reimbursed. If any commuting is reimbursed, this is considered taxable wages. The IRS reminds taxpayers "It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses." HWS recommends that mileage reimbursement be included as part of the employee's work agreement when an employee's personal vehicle is used for work purposes.
WRITTEN WORK AGREEMENT:
An increasing number of states and cities are requiring household employers to provide a written employment agreement at the time of hire outlining wages and benefits in English and a language the household employee understands, if not English. Many other states and localities require that employers disclose in writing pay rates, either via a separate written notice or by outlining on a pay stub. Be sure to visit our tip sheets for household employment rules in your state.
SALARY HISTORY BAN:
Starting in 2021, Colorado is added to the list of states prohibiting employers from requesting, considering or relying on prior salary history information including but not limited to wages, benefits, and other compensation from applicants. Currently 19 states and 20 local governments have salary history bans in place. To find out if you are covered by a salary history ban check here.
Compliance with legal payroll tax laws is time consuming for household employers. Find out why so many families outsource this activity to HomeWork Solutions' household payroll tax compliance service.