DEFINITION of 'Household Employee'

An individual who is paid to provide a service within a residence. Examples include babysitters, nannies and housekeepers. Independent contractors such as repairmen and plumbers are not considered household employees.

BREAKING DOWN 'Household Employee'

The Internal Revenue Service distinguishes between household employees and independent contractors based on whether the employer/taxpayer can determine not only the work that is performed but how it is carried out. As of 2010, individuals who hire household employees that they pay a total of more than $1,700 during the tax year must pay Social Security, Medicare and Federal Unemployment taxes on this employee's wages and may be required to pay taxes at the state level as well. These taxes on household employees are commonly known as the "nanny tax."

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