Definition of Household Employee
A household employee is an employee at their employer’s home. Employers decide what homeworkers do and how they do it. Babysitters, nannies, and gardeners are domestic laborers. Independent contractors, like repairers, carpenters, and plumbers, are not considered household workers.
A home employee can request federal income tax withholding from their earnings, but the IRS doesn’t mandate it.
Understanding Home Workers
The IRS differentiates between home workers and independent contractors depending on whether the employer or taxpayer controls the task and its execution. A person who chooses how they work is a self-employed worker, not a household worker. Independent business people supply their tools and services.
The workplace can determine if someone is a home employee or an independent contractor. A childcare worker who works in an employer’s home may be a household employee. However, a childcare facility would hire someone who provides the same services.
Household Employee Examples
Employees are considered employees regardless of whether they are full-time, part-time, or employed through an employment agency or labor group list. Pay for household workers might be hourly, daily, weekly, or per job.
Typical home workers include babysitters, caregivers, cleaners, drivers, health aides, housekeepers, maids, nannies, private nurses, and yard workers.
Special Considerations: Taxes
Starting January 2021, persons who pay home employees above $2,300 in cash compensation must pay Social Security, Medicare, and Federal Unemployment taxes, as well as possible state taxes.
The “nanny tax.” applies to domestic staff. Social Security taxes are 6.2%, and Medicare taxes are 1.45%, totaling 7.65% of cash salaries in 2021. The employer must match 7.65% of Social Security and Medicare costs. Employers may withhold 15.3%. Employing home employees may have complex tax ramifications, but payroll services may simplify the process.
Household employees employed after 2020 do not need to complete the updated W-4 tax form.
Conclusion
- Household workers perform all services in their employer’s home.
- According to the IRS, independent contractors define their jobs, whereas household employees have their work predetermined by their employers.
- Household workers include nannies, babysitters, housekeepers, and gardeners.
- New home employees employed after 2020 do not need to complete the redesigned W-4 form.
