Updated 27 December 2022
Every year HomeWork Solutions prepares a summary of new or updated household employment tax laws and benefit information.
HOUSEHOLD EMPLOYEE 2023 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. These tax withholdings are reported annually on a W-2. This threshold will increase to $2,600 for 2023.
MINIMUM WAGE INCREASES:
Minimum wage under federal law remains at $7.25/hr, but states and local governments continue to set and increase minimum wage requirements at the local level. Be sure you check out minimum wage and other requirements in your state before you negotiate a contract with your employee. Consider how offering a total compensation package including benefits may help both you and your employee minimize taxes.
TAX ADVANTAGED HEALTHCARE OPTIONS:
The IRS allows an employer to reimburse healthcare costs to their employee tax free via two Healthcare Reimbursement plans, subject to program guidelines. Qualified Small Employer Healthcare Reimbursement Arrangement(QSEHRA) is capped at $5,850 for individuals or $11,800 for a family in 2023. The Individual Coverage Health Reimbursement Arrangement(ICHRA) 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 reimbursement 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 $300 monthly to their household employee, or a monthly reimbursement of up to $300 for parking. Both amounts have been increased by $20 from the prior year.
PAID SICK AND FAMILY LEAVE LAWS:
Seventeen states plus Washington, DC now require some form of paid sick leave, safe leave, or 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. In general these laws allow time off to deal with both the employee’s illness and medical appointments, and those 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, scheduled close to the beginning or end of the day. Read more about paid leave laws in your state.
Federal mandates for paid leave related to the Coronavirus Pandemic have expired, but many states now require paid or unpaid leave for employees to get tested, vaccinated, or to quarantine in the event of illness or exposure. Practically speaking, offering this leave is good for household employers, as employees without paid leave are more likely to come to work while ill and to risk getting others sick.
Changes of note for 2023 include the following
The definition of a "Family Member" is expanded to include a "designated person," so employees may designate an individual for who's care they may use time off.
Effective January 1, 2023 Employers and Employees will begin contributing to the FAMLI leave insurance program at a rate of 0.45% of gross pay (0.9% combined). Employers with fewer than 10 employees are not required to contribute, but they are still required to collect and remit the employee's share. Beginning in 2024, employees can file claims for benefits under FAMLI that can provide income for as much as twelve (12) weeks of family and medical leave. More information about FAMLI can be found at https://famli.colorado.gov/.
The definition of a "Family Member" is expanded to include a sibling, including biological, adopted, step, and half siblings.
Effective January 1, 2023 Employers and Employees will begin contributing to the Paid Leave Oregon insurance program at a rate of 0.4% and 0.6% of gross pay, respectively (1.0% combined). Employers with fewer than 25 employees are not required to contribute, but they are still required to collect and remit the employee's share. Beginning in September 2023, employees can file claims for benefits under FAMLI that can provide income for as much as twelve (12) weeks of family and medical leave. More information about FAMLI can be found at https://paidleave.oregon.gov/Pages/default.aspx.
2023 MILEAGE REIMBURSEMENT
The 2023 IRS mileage reimbursement rate has increased to 65.5 cents per mile, up 3 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 BANS AND SALARY POSTING REQUIREMENTS:
Currently 21 states and 21 local governments have salary history bans in place. To find out if you are covered by a salary history ban check here.
Several states also require employers to post salary ranges with any listed position to provide transparency and prevent discrimination in wage negotiations. You should always post your expected salary range to ensure that candidates who apply are a good match for the skills required and compensation offered.
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.