When you hire a domestic employee to work in your home you assume several important employer responsibilities. Here’s a summary of the requirements and an easy solution for taking care of them:
Household Employer Requirements
Tax & Wage Reporting
- Register for federal and state tax accounts
- Complete and file a New Hire Report
- Calculate the correct amount of federal and state taxes to withhold each pay period
- Track gross pay, net pay, federal and state taxes withheld, and federal and state employer taxes
- Prepare state employment tax returns on a regular basis and remit employer and employee taxes
- Prepare 1040-ES vouchers and remit federal taxes to the IRS four times per year
- Prepare year-end tax forms (W-2, W-3, Schedule H and State Annual Reconciliation)
- Respond to IRS and state tax agency notices
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Labor Law & Insurance*
- Written Notices (employment agreement, termination notice…)
- Wage & Hour Law Requirements (overtime, minimum wage… Reimbursement for Mileage & Expenses
- Workers’ compensation insurance
*Requirements vary by state.
Hello Nanny is proud to partner with HomePay, the nation’s leading household employment specialist, providing a comprehensive solution for employment taxes, payroll and labor law since 1992. Contact our dedicated partnership team at 877-367-1969 for your complimentary consultation to learn more or schedule a call here.
Dependent Care Tax Breaks
Good News: Tax Breaks Can Offset Household Employer Tax Costs
Most people assume that payroll taxes will significantly increase the cost of being a household employer. Well, there’s good news: they’re wrong! The truth is, for most employers, tax breaks offset the majority of the employer payroll taxes. And it’s not uncommon to have the tax savings actually exceed the cost of employer taxes – meaning employers actually come out ahead by paying their household employees legally! For an estimate of your tax costs and tax breaks, please contact our partners at HomePay.
Available Tax Breaks
A tax break is available to you — regardless of your income level — if you have qualifying care-related expenses. These expenses include the wages paid to a household worker if their duties are at least partly for the well-being and protection of your dependent under the age of 13. You can also count your employer taxes on those wages and any fees paid to a staffing agency. To qualify for the tax break, your household must meet the work-related test — which means that the care is needed because both spouses work, are looking for work or are full-time students.
If you pass the work-related test, there are two tax breaks available:
- Dependent Care Account. Also called a “Flexible Spending Account” (FSA). If you work for a participating company, you can pay for part of the childcare-related expenses using pre-tax dollars. The limit is $5,000 per family per year. Depending on your marginal tax rate, utilizing your FSA can put as much as $2,300 per year in your pocket. For enrollment details, check with your HR or Accounting Department.
- Child or Dependent Care Tax Credit. Families may itemize care-related expenses on their federal income tax return using IRS Form 2441. The expense limit is $3,000 for one dependent or $6,000 for 2 or more dependents. The 20% credit will yield an annual savings of $600 for families with one child and $1,200 for families with 2 or more children.
Maximizing your tax breaks
If you have one dependent, your best option is the FSA. Utilize the full $5,000 (if your expenses will be $5,000 or more). You’ll save between $2,000 and $2,300 per year, depending on your marginal tax rate and which state you live in. If you don’t have access to a FSA (or cannot enroll until a future tax year), utilize the Tax Credit. You are not eligible to use both tax breaks.
If you have two or more dependents, utilize your FSA for the full $5,000 (if your expenses will be $5,000 or more). This will save you between $2,000 and $2,300 per year, depending on your marginal tax rate and which state you live in. If your dependent care expenses are greater than your FSA contribution, you have “excess expenses.” The excess expenses can be applied to the Tax Credit on Form 2441, which will save you an additional $200 per year.
For a typical family with 2 or more dependents, combining the FSA and the Child Care Tax Credit will result in a total savings of $2,200 to $2,500 per year.
Hello Nanny is proud to partner with HomePay, the nation’s leading household employment specialist, providing a comprehensive solution for employment taxes, payroll and labor law since 1992. Contact our dedicated partnership team at 877-367-1969 for your complimentary consultation to learn more or schedule a call here.
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