Updated December 2024
Every year HomeWork Solutions prepares a summary of new or updated household employment tax laws and benefit information.
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 $2,800 for 2025.
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.
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 $6,350 for individuals or $12,800 for a family in 2025. 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.
> Request a Free QSEHRA Plan Template
> Visit our partners at Take Command Health if you are interested in HRA Administration
Employers may provide a mass transit tax free reimbursement of up to $325 monthly to their household employee, or a monthly reimbursement of up to $325 for parking. Both amounts have been increased by $10 from the prior year.
Eighteen 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 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.
Changes of note for 2025 include the following
Maine
Starting on January 1, 2025, employers with fewer than 15 employees must begin contributing 0.5% of wages for the Maine Paid Family & Medical Leave program. The full amount of the contribution amount may be deducted from the employee's wages. Claims and Benefits payments for the program will begin after May 1, 2026
Maryland
Beginning July 1, 2025, employers with fewer than 15 employees must begin contributing 0.45% of covered wages for the Maryland Family and Medical Leave Insurance program. The full amount of the contribution amount may be deducted from the employee's wages. Claims and Benefits payments for the program will begin July 1, 2026
The most common retirement savings vehicles for household employees remain IRAs (Traditional and Roth), SIMPLE IRAs, and SEP IRAs. While the contribution limit on individual IRAs will remain $7,000 in 2025, the limit on SIMPLE IRA Contributions will increase to $16,500 wtih allowable catchup contributions of $3,500 and $5,250 for those over ages 50 and 60 (respectively). The cap on SEP Contributions will be $70,000 in 2025.
The 2025 IRS mileage reimbursement rate has increased to 70 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. 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.
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.
Currently at least 22 states and 23 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. Maryland is the latest to join this list. 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.