Household Employment Taxes

If you employ someone to work in your home as a domestic servant, you may be required to pay various household employment taxes. This is the so-called "nanny tax." Basically, you are an employer, and you are required to pay Social Security, Medicare, and Unemployment taxes just like any other employer. You calculate your employment taxes on Schedule H (PDF) and Instructions for Schedule H.

Who's a household employee?

A household employee is anyone you pay to provide domestic services in your household, such as:

• Babysitters, nannies, and au pairs,
• Caretakers, health aides, and private nurses,
• Housekeepers and maids,
• Gardeners, landscapers, and yard-keepers,
• Drivers and chauffeurs,
• Personal assistants, personal chefs, and cooks.

Who's not a household employee?

If you hired a household worker through an agency, and the agency is responsible for who does the work and how the work is performed, then the agency is responsible for all employment taxes. This should be specified in your contract for services with the agency.

If you hired a self-employed worker, then that individual is responsible for his or her own Social Security and Medicare taxes (the self-employment tax). A self-employed worker is someone who controls how the work is performed, and provides his or her own supplies and equipment.

Who's required to file a Schedule H?

You are required to file a Schedule H if:

• You paid any single worker wages of $1,400 or more last year, or
• You paid a worker any amount of money, and you withheld income taxes for the employee, or
• You paid total wages of $1,000 or more in any three-month period in the past two years to all your household workers.

Other reporting requirements

If the household worker is your employee, you must also provide the employee with a W-2 statement by January 31st reporting wages, income tax withholding, Social Security withholding, and Medicare withholding for the previous year. You must also obtain the employee's Social Security Number, and verify that the employee is eligible to work in the United States by using Form I-9 from US Citizenship and Immigration Services. You don't need to send the Form I-9 anywhere, just keep this form for your own records. You also need to obtain a Form W-4 from a new employee, which will provide you with the employee's Social Security Number and withholding allowances.

If the household worker is self-employed, you must provide the worker with a 1099-MISC by January 31st to report non-employee compensation for the previous year. You also need to have the worker fill out a Form W-9 to provide you with his or her Social Security Number.

You may need an Employer Identification Number (EIN) to report your employment taxes. You can instantly obtain an EIN number online for free from the IRS using their online Form SS-4.