What Is a Household Employee?
A household employee is an individual who is paid to provide a service within their employer's residence. Employers choose what kinds of work a household employee is responsible for and the manner in which that work is expected to be completed. Some examples of household employees (or household workers) include babysitters, nannies, and gardeners. Independent contractors such as repairmen, carpenters, and plumbers are not considered household employees.
The IRS doesn't require an employer to withhold federal income tax from a household employee's wages, but if the employee asks to have it withheld, the employer can.
Understanding Household Employees
The Internal Revenue Service (IRS) distinguishes between household employees and independent contractors based on whether the employer or taxpayer can determine not only the work that is performed but also how it is carried out. If the worker decides how they work and how a job is done, they are considered to be a self-employed worker, not a household worker. Such individuals provide their own tools and offer their services to the public as independent businesspeople.
- Household employees work and provide all services at their employer's place of residence.
- The IRS sees a household employee as having work decided by an employer and an independent contractor as having work defined by the worker.
- Nannies, babysitters, housekeepers, and gardeners are all considered to be household employees.
- As of 2020, all new household employees must fill out the revised W-4 form, though those hired before 2020 do not need to fill out a new form.
Where someone works may decide whether they are a household employee or an independent contractor. For example, a childcare worker who performs their duties in an employer's home may be a household employee. But a worker who performs the exact same services in a daycare center would be employed by that daycare center.
Examples of Household Employees
If the worker is an employee, it does not matter if whether the work they perform is full-time or part-time or if they were found and hired with the use of an employment agency or via a list provided by an agency or labor organization. Household workers may be paid on an hourly, daily, weekly, or per-job basis.
Some common examples of household workers include the following: babysitters, caretakers, cleaning people, domestic workers, drivers, health aides, housekeepers, maids, nannies, private nurses, and yard workers.
Special Considerations: Taxes
As of 2021, individuals who hire household employees that they pay a total of more than $2,300 in cash wages 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." As of 2021, the withholding amount for Social Security taxes is 6.2% and the sum for Medicare taxes is 1.45% for a total of 7.65% total withheld from all cash wages. The employer also must match that 7.65% out of their own pocket, also for Social Security and Medicare. Some employers may choose to pay a total of 15.3% withholding themselves. While the tax implications of hiring a household employee may appear complex, there are many payroll services that can help automate some or all of the process.
As of 2020, new household employees must use the redesigned W-4 tax form upon hire, though those hired before 2020 do not need to fill out a new form.