Whether you hired a nanny, a housekeeper, a personal assistant, or a private educator this year, there are some important things to know when it comes to filing taxes. When you hire someone to work in your home, you become an employer. Tax and labor laws generally apply, even if there are some small exemptions unique to household employers. Many families don’t know this and make the mistake of paying the employee “off the books.” This could be a very costly error. Here are some specific ways to avoid domestic employee tax problems.
#1: Don’t classify your household employee as an independent contractor.
Your household worker is an employee, not an independent contractor. If you control what their job is, when and how the work is done, and what their hours are, they are not an independent contractor. The IRS views your employee as exactly that: an employee. If you don’t pay them as such – and pay the proper taxes – you could be subject to very costly fines.
#2: Create a written work agreement.
When you hire your household employee, create a work agreement immediately. This will outline all the important terms of their employment with you: wage, payroll schedule, details about paid time off and paid holidays, termination clause, and anything else you deem necessary to include. Having a written agreement ensures that there is no confusion later down the road.
#3: Always pay overtime.
As the employer, you must pay your employee overtime if they work over 40 hours in a 7-day workweek. Payment needs to be at least 1.5 times their regular wage. There may be exemptions for live-in caregivers depending on your state, and you should consider these
If you are unsure of how to begin the process of setting up your domestic employee’s payroll or tax withholdings, that’s okay. Our experienced team at HomeWork Solutions can help. Our specialists will work directly with you to set up everything needed to get your employee paid on time and on the books. Contact us today to get started.