Guide Tax Guide for Household Employers

If you're a household employer, there are certain responsibilities, state and federal, that you have when it comes to taxes. This guide will let you know what they are and what to do about them.

This guide is not designed to address all questions which may arise nor to address complex issues in detail. Nothing contained herein supersedes, alters or otherwise changes any provision of the Massachusetts General Laws, Massachusetts Department of Revenue Regulations, Department rulings or any other sources of the law.

Table of Contents

Introduction

You're a household employer if you pay someone to perform household work, and that worker is your employee. Household work is work done in or around your home by:

  • Baby-sitters
  • Nannies
  • Health aides
  • Private nurses
  • Maids
  • Caretakers
  • Yard workers, and
  • Similar domestic workers

A household worker is your employee if you can control not only what work is done, but also how it is done. It doesn't matter if:

  • The work is full-time or part-time
  • You hired the worker through an agency or from a list provided by an agency
  • Whether you pay the worker on an hourly, daily, or weekly basis, or by the job

If only the worker can control how the work is done, the worker is considered self-employed, and not your employee. A self-employed worker usually provides their own tools and offers services to the general public in an independent business. If an agency provides them with tools and controls what work is done and how it is done, the worker is not your employee.

If you want the Internal Revenue Service (IRS) to determine whether a worker is an employee, file a federal Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

When you hire a household employee to work for you on a regular basis, they must complete the employee part of the Department of Homeland Security Form I-9, Employment Eligibility Verification. You must verify that the employee is either a U.S. citizen or a legal alien, and then complete the employer part of the form.

Keep the completed form for your records and reverify the employee's work authorization if and when necessary. You must make the form available for review upon notice from an authorized U.S. government official. Don't submit it to the IRS, INS, or to any other local, state, or federal government entity.

Federal responsibilities

At the federal level, there are 3 taxes that you may be responsible for paying:

  • Social Security and Medicare taxes
  • Federal unemployment tax
  • Federal income tax withholding

Social Security and Medicare taxes (FICA taxes)

The Social Security tax pays for old age, survivors, and disability benefits. The Medicare tax pays for hospital insurance.

If you pay cash wages of $2,000 or more to any household employee in a year, then you need to withhold and pay Social Security and Medicare taxes. 

Cash wages include wages you pay with:

  • Checks
  • Money orders
  • Etc.

Cash wages exclude:

  • Food
  • Lodging
  • Clothing
  • Other noncash items you give your household employee 

However, cash you give your employee in place of these excluded items is included in cash wages.

Don't count wages you pay to:

  • Your spouse
  • Your child under age 21, or
  • Your parent

The taxes for you (employer) and your employee are 7.65% (6.2% for Social Security tax and 1.45% for Medicare tax). 

You're responsible for paying your employee's share of the taxes as well as your own. You can withhold your employee's share or pay it from your own funds.

For income tax purposes, you must include the Social Security and Medicare taxes you pay from your own funds to cover your employee's share in the employee's wages. However, they are not counted as Social Security and Medicare wages or as federal unemployment wages.

For more information on Social Security and Medicare taxes, see U.S. Publication 926, Household Employer's Tax Guide.

Federal unemployment tax (FUTA)

FUTA taxes pay unemployment compensation to workers who lose their jobs. If you pay total cash wages of $1,000 or more in any quarter in the current or previous calendar year for all household employees, then you need to pay federal unemployment tax (FUTA).

Don't count wages you pay to:

  • Your spouse
  • Your child under age 21, or
  • Your parent

A calendar quarter is:

  • January through March
  • April through June
  • July through September, or
  • October through December

The federal unemployment tax is 6% of your employee's FUTA wages. The tax applies to the first $7,000 you pay each employee as wages during the year. However, you may be able to take a credit of up to 5.4% against the FUTA tax if you pay your state unemployment tax contributions on time, resulting in a net FUTA tax of 0.6%.

Don't withhold FUTA taxes from your employee's wages. You must pay the FUTA tax from your own funds.

Federal income tax withholding

Federal income tax withholding is not required for a household employee, but may be paid if the employee requests it and you agree. If you and your employee both agree to federal income tax withholding, the employee must give you a completed U.S. Form W-4 - Employee's Withholding Allowance Certificate.

Base the amount of income tax withholding on your employee's marital status and withholding allowances as shown on their Form W-4. You must also get your employee's Social Security number (SSN) from them. If your employee doesn't have a Social Security number, they can get one by completing the U.S. Form SS-5, Application for a Social Security Card.

If your household employee doesn't request federal income tax withholding, they should be aware that they may have to make federal estimated tax payments. For more information on making estimated tax payments, see U.S. Form 1040-ES, Estimated Tax for Individuals.

See U.S. Publication 15, Circular E, Employer's Tax Guide, for more information about federal income tax withholding and for the current federal income tax withholding tables. You can also get this guide by calling the IRS at (800) 829-3676.

Paying federal employment taxes

If you will pay Social Security and Medicare taxes, FUTA and/or federal income tax withholding, you first need to get an Employer Identification Number (EIN).

You can usually pay all the federal employment taxes for a household employee by filing and attaching U.S. Schedule H - Household Employment Tax to your U.S. Form 1040.

You also need to:

  1. File a U.S. Form W-2, Wage and Tax Statement for each household employee you pay taxable wages to.
  2. Complete the Form W-2 and give copies B, C and 2 to your employee by January 31 of the following calendar year.
  3. Send Form W-2 (Copy A) with U.S. Form W-3, Transmittal of Wage and Tax Statements, to the Social Security Administration by February 28 of the following year.

For more information about federal tax return requirements for household help, call the IRS at (800) 829-1040. If you need more forms, instructions or publications, call the IRS at (800) 829-3676 or visit their website.

State responsibilities

At the state level, there are 3 taxes that you may be responsible for paying:

  • Unemployment insurance
  • Workers' compensation insurance
  • State income tax withholding

Unemployment insurance

If you pay cash wages totaling $1,000 or more in a calendar quarter to household employees, you need to pay unemployment insurance to the Department of Unemployment Assistance (DUA), except for services performed by:

  • A child under the age of 18 for their parent
  • An individual for their spouse 
  • An individual for their child

After registering with DUA, you'll receive an 8-digit Employer Account Number (EAN) that you need for doing any business with DUA. You'll also get a notice with a UI Online User ID and password. You must activate your account before DUA can accept your records and payments.

For more information about unemployment insurance taxes for employers, contact DUA at (617) 626-5075 or visit their website. Money that DUA collects goes directly into a trust fund that pays benefits to qualified claimants.

Workers' compensation insurance

If your household employee works at least 16 hours per week, you need to carry workers' compensation insurance. Workers' compensation is an insurance system that protects employees if they get injured on the job or contract a work-related illness.

You can get insurance through any insurance agent or broker who handles business insurance or through a direct writer of insurance.

If you've been rejected by 2 companies licensed to write workers' compensation insurance in Massachusetts, you can get workers' compensation coverage by filing an Application for Workers' Compensation Insurance. Get this form by calling the Workers' Compensation Rating and Inspection Bureau of Massachusetts at (617) 439-9030.

For more information about workers' compensation in Massachusetts, call the Department of Industrial Accidents at (617) 727-4900 or (800) 323-3249, or visit their website.

State income tax withholding

State income tax withholding is not required for a household employee, but may be paid if the employee requests it and you agree.

If you both agree to state income tax withholding, you, as the employer, must register online using your federal EIN for registration purposes.

The employee must give you a completed U.S. Form W-4, and if necessary, a completed Form M-4 - Massachusetts Employee's Withholding Exemption Certificate. Base the amount of state income tax withholding on withholding allowances, as shown on U.S. Form W-4 or Form M-4, and on Circular M -Massachusetts Income Tax Withholding Tables.

For most household employees, withholding will be between $101 and $1,200 annually. Therefore, you would file and pay over state withholding (5.1% of wages) on a quarterly basis online or on Form M-941 - Employer's Quarterly Return of Income Taxes Withheld. Employers withholding $5,000 or more have to file returns and make payments electronically.

If your household employee doesn't request state income tax withholding, they should be aware that they may have to make state estimated tax payments. For more information on making estimated tax payments, see Massachusetts Form 1-ES, Estimated Tax Payment Vouchers for Individuals.

You also need to report new hires within 14 days of hiring or reinstating them. Employers, including those who don't have unemployment tax obligations, must also file their quarterly wage reports.

For more information on withholding state income tax, call our Contact Center Bureau at (617) 887-6367 or toll-free in Massachusetts at (800) 392-6089.

Additional Resources for State responsibilities

Image credits:  Triple decker street (George Headley)

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