Cleaning houses is tough work. Whether you do it for a living or as a side gig, no one day is the same as the next. Even your set rates can change with each job. Throw in filing for taxes or charging a tax on your services, and it can get downright confusing.
Here are seven common questions about how to file taxes as a housekeeper — plus, helpful answers to walk you through the process.
If you have additional questions, hire a professional accountant who can help you with your specific tax situation.
1. Are you self-employed or a household employee?
First you need to figure out if you’re an employee or an independent contractor. If you earn more than $2,300 from any one family in a calendar year and you fulfill certain job characteristics, the IRS considers that an employer/employee relationship.
“The easiest way to determine if you’re an employee of a family is to ask yourself who is in control of the relationship,” says Tom Breedlove, Sr. Director of Care.com HomePay. “If the family decides when you come to the home, what areas you clean and you use their supplies, you’re most likely their employee.”
But if you bring your own mops, bleach and dust cloths, clean according to your own preferences, own your own small business and can send a different housekeeper to a family’s home in your place, you’re probably an independent contractor, not an employee — even if you go over that financial threshold.
2. How do I handle taxes as a household employee?
If you count as an employee, the family you’re working for is responsible for withholding Social Security and Medicare (FICA) taxes from your pay and paying a matching portion of employer FICA taxes. The family is also responsible for giving you a Form W-2 so you can file your personal income tax return, not a Form 1099, which is only used for independent contractors.
Do you typically get paid under the table and ignore taxes? Learn why it’s important to be paid legally.
3. How do I file taxes as an independent contractor?
If you’re an independent contractor, you’ll file your taxes using a Form 1099, and you’re responsible for paying both the employer and employee portions of FICA taxes. This IRS guide for those who are self-employed or own a small businesses can be a helpful resource.
4. What if I own a small business?
If you’re a small business and employ others, you’ll use the Form 944, an employer’s annual federal tax return; Form 941, an employer’s quarterly federal tax return; and Form 940, an employer’s annual federal unemployment (FUTA) tax return. If you employ others, you’ll need to file for an Employer Identification Number (EIN) for tax filing purposes.
5. What if I work for several families as their employee?
Unless you own your own company or work through an agency, the $2,300 annual threshold applies to each situation. If you earn $2,400 from one family, $4,000 from another and $3,100 from a third family, each of those families is legally required to withhold taxes from you and pay employer taxes.
This process protects both you as an employee and the family who employs you. You’ll pay into the benefits you may eventually need and your employer will be following the law and avoiding possible IRS and state tax agency penalties. And it’s professional, giving you a work history that can be verified when you apply for a car loan or a mortgage.
6. What if I’m an employee but don’t earn enough to have taxes withheld?
If you have smaller jobs that are employee/employer working relationships, your filing might change. If your three jobs earned $750, $1,700 and $900, neither you nor your employer has any household employment tax responsibilities. But you do need to claim that money on your personal income tax return as “other income” because the IRS requires you to report all the wages you’ve earned throughout the year.
7. Should I charge sales tax if I own my own housekeeping service?
“Some states require a sales tax charge on cleaning services by an independent contractor or a company, but not by an employee,” says Diane Yetter, president and founder of YETTER Consulting, a sales tax consulting and tax technology firm, and founder of the Sales Tax Institute.
Check with the proper office in your state (usually a department of revenue, finance or taxation or a board of equalization) to find out if you need to charge a sales tax and how to get the required permit.
Generally, sales taxes need to be paid monthly, sometimes more frequently, and aren’t submitted with income taxes. “If you call and you are told [you should be charging a sales tax], you better take action,” she shares, as some states track inquires and check to make sure people are in compliance.
Taxes are complex, but once you know what to do, you’ll be on the right track.
Your next steps:
* The information contained in this article should not be used for any actual caregiver relationship without the advice and guidance of a professional adviser who is familiar with all the relevant facts. The information contained herein is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for your specific circumstances and may require consideration of other matters.