Do I have to withhold taxes for my babysitter, maid, or gardener?

Originally Published in the Pacific Grove Hometown Bulletin

May 4, 2011

 

Do I have to withhold taxes for my babysitter, maid, or gardener?

Well…it depends.  If you ever plan on running for office you should really consider it, as the seeds for many embarrassing political moments found root in avoiding the so-called “Nanny Tax!”  Even if you do not have your heart set on politics there are good reasons you should take the time to consider if you are complying with the law.

General rules: If you pay household employees (defined later) a total between $750 and $999 during a quarter, you are required to withhold California State Disability Insurance (SDI).  If the amount is $1,000 or more you also must pay California Unemployment Insurance (UI), California Employment Training Tax (ETT), and Federal Unemployment Tax (FUTA).   If you pay over $1,700 during the year to a single employee, you are also required to withhold Social Security and Medicare taxes including your share as the employer.   You would have to file payroll tax returns and possibly Schedule H with your personal tax returns, and have the employee fill out a Form I-9 Employment Eligibility Verification.  These are all manageable tasks you can perform, but most people would rather spend their free time doing something else, and hiring a payroll service instead.

So what is a household employee?  This means you have a high degree of control over what, when, and how they do their job.  Examples: If your gardeners provide their own supplies, tools, set their own schedules and hold themselves out to the public as providing gardening services, they are not likely to be considered your employees.  If you hire a gardener from 8-10 on Tuesdays and Thursdays, tell him what you want him to focus on and he uses your tools, you likely have an employee.  A babysitter in your home is likely your employee, but if at their home maybe not.  The cleaning person using your supplies and equipment at a time you control is likely your employee whereas the person that shows with window cleaner in-hand, a vacuum, and a business card “sometime on Wednesday” – probably not.  If your household employee is under 18 and a student you are generally exempt.  If you call a company and they send their employee to babysit, clean, garden, etc. then the service provider is the employer and not you.  It is a gray area, and you may want to contact a tax professional to discuss.

So I have an employee, but who reports this anyway?  It may be true that many people do not report this correctly and not a lot of resources are devoted to enforcement, but that does not help you if you become that example of enforcement.  You have to ask yourself is it worth the potential trouble?  You would likely be held liable for all taxes including the employee’s share with interest and penalties.  If the individual files an unemployment claim or gets hurt at your home, you could be held liable for unemployment or disability payments.  And what if the worker is illegal – that has its own potential civil and criminal penalties.   Following the law does serve as a protection to you.

For more information, you can reference the guidance in IRS Publication 926-Household Employer’s Tax Guide and CA EDD-Household Employer’s Guide – both available online.

Travis H. Long, CPA is located at 706-B Forest Avenue, Pacific Grove, CA.  Travis can be reached at 831-333-1041.

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