Household payroll wages include anything of monetary value given by an employer to an employee. These things are considered compensation and are subject to wage reporting as well as employment and income taxes. We will include some of the basic ‘must-know’ information you need to know about paying your household employee.
The salary and bonus schedule that you determine for your household employee is subject to wage reporting and necessary taxing. Be sure that you outline salary details clearly in an employment contract once you and your employee decide on everything. This will help keep things clear in the event of any questions or confusion down the road.
As the employer, you will need to look at the employment agreement and determine if overtime is necessary. There is not a “one size fits all” rule regarding overtime. Bob King of Legally Nanny says, “Under most circumstances, live-in nannies are exempt from federal overtime. Live-out nannies must be paid overtime of 1.5 times their regular rate of pay for all hours worked above the 40 hours in a week. State laws may require weekly and even daily overtime as well.” If you’re not sure what your state law requires, click here for additional information.
Need a babysitter for the summer? Most nannies will work a series of short term assignments during the year. If you pay the temporary babysitter/nanny more than $1900, you are responsible to pay all employment taxes. If you pay this person less than that amount, you won’t be required to pay social security or Medicare taxes, but you may be responsible for unemployment taxes. If you’re unsure of how a temporary employee will affect you during tax time, calls us for details and other information that is specific to your situation. We’re glad to help! We have a great tip sheet that can help you out also.
Vacation and sick pay, including payouts of earned/accrued vacation/sick pay that went unused, is considered money that can be counted as income and is subject to taxes.
If you do not deduct Social Security and Medicare taxes from your household employee and instead pay her share along with your's, this tax is part of taxable wages.
Documented business use of the caregiver's car can be reimbursed on a tax free basis at no more than the IRS' published mileage reimbursement rate provided that the documentation exists. Simply providing a car allowance without documentation for use is considered taxable income. Unless it's an accountable plan (i.e., you are required to submit actual out-of-pocket expense reports or business mileage logs to your employer), the employer must include this in taxable income.
Gift cards that are redeemable for merchandise or have a cash equivalent value are not considered part of a de minimis benefit (any property or service that you give to an employee that has such small value that it has no need of being accounted for). In other words, if you give your employee a cash equivalent item, you are not able to exclude it from income earned.
If you regularly provide meal or transportation money to your employee, this must be reported and included in taxable wages. If you only provide this type of cash benefit rarely, it may be excludable as a de minimus benefit, but it depends on the facts and various circumstances surrounding it.
If you fail to include the necessary information on taxable income, it can be a very costly mistake. There can be big fines or other monetary penalties that come with providing inaccurate information, so be sure that you keep detailed records and provide the facts correctly from the beginning. Work together with a household payroll specialist in order to help you stay organized and answer questions that you may be confused about. This can help you avoid expensive errors and will help you better understand how the payroll process works as a household employer.