Maryland Tax & Labor Law Summary

When you hire someone to work in your home, you are subject to very specific tax and labor laws. The following overview covers your Maryland nanny taxes and how our no work, no worry service can be a great solution for busy families.

WORKER CLASSIFICATION

When a family hires someone to perform duties in or around their home, they are considered a household employer. The IRS views the worker whether a nanny, health aide, housekeeper, senior caregiver, gardener, chef, personal assistant, estate manager, etc. as an employee of the family in nearly every case. Misclassifying an employee as an independent contractor (using Form 1099) is considered tax evasion, so please call us if you're not sure how to classify your worker.

TAX RESPONSIBILITIES

Household employers have four primary tax responsibilities. These are sometimes referred to as the Maryland nanny tax obligations:

1. Withhold Social Security and Medicare taxes from their employees paycheck each pay period.  Federal and state income taxes should be withheld based on the employees selections on Form W-4 and Form MW 507.

* It is not legally required that income taxes be withheld. However, we strongly advise it so that the employee does not have a large tax burden at the end of the year and is not subjected to underpayment penalties.

2. Pay the employers portion of Social Security and Medicare, as well as federal and Maryland unemployment insurance taxes (FUTA and SUTA).

Good news! There are some tax breaks for dependent care that can help offset these employer taxes. For an estimate of your employer costs and your tax breaks - as well as your employee's take-home pay - give us a call.

Note: In addition to the tax breaks mentioned above, household employers in Maryland may be entitled to additional state tax credits for childcare-related expenses. Please call for details.

3. File tax forms with the Comptroller of Maryland and the Maryland Department of Labor, Licensing & Regulation (DLLR), typically on a quarterly basis, and with the IRS in April, June, September and January. With these filings, employers remit (pay) the employee taxes withheld and the employer taxes accrued.  

4. At the end of the year, prepare Form W-2 and distribute to each employee, file Form W-2 Copy A and Form W-3 with the Social Security Administration and file Schedule H with your personal income tax return.

LABOR LAW REQUIREMENTS

The Fair Labor Standards Act (FLSA) provides the framework for federal and state wage and hour law. Household employees are classified under the FLSA as non-exempt workers. Non-exempt workers in all 50 states are covered by the rules and protections of the FLSA. Maryland may supplement the federal law with additional state and municipal labor law.

Minimum Wage

Minimum wage in Maryland is currently $10.10 per hour.

Montgomery County minimum wage: $12.00 per hour

Prince George County minimum wage: $11.50 per hour

Note: Whenever more than one rate applies, employers are required to pay the higher rate.
 

Overtime

Overtime requirements are not determined by the amount of hours or by the type of pay (hourly or salary); they are determined by the type of work. The FLSA requires domestic workers be protected by overtime laws. The requirements for Maryland household employers are as follows:

  1. The standard workweek is defined as 40 hours in a 7-day period.

  2. Maryland employees should be paid at least 1.5 times the regular hourly rate (time-and-a-half) for all hours worked over 40 in a workweek. 

  3. Overtime compensation is required for live-in employees.

  4. Overtime is not required to be paid when work is performed on a holiday.

Wage Notice

Household employers in Maryland are required to provide their employees with a written wage notice at the time of hire. The notice must include the employee's hourly pay rate, regular pay days and leave benefits (sick time, vacation time, etc.).

Montgomery County Contract Requirement

Household employers in Montgomery County have additional requirements under The Domestic Workers Law when they hire a qualified domestic worker. The law requires employers to negotiate a written contract with an employee who works 20 or more hours per week for a period of 30 or more days. The contract must include the details regarding the work, payments, any paid or unpaid time off, living conditions (if applicable), causes for termination of the contract and any additional terms such as length of contract or reimbursements for work-related expenses.

Montgomery County Sick Leave

Household employers in Montgomery County are required to provide up to 56 hours of sick leave to their employee each calendar year.

  • 32 hours must be paid sick leave and the remaining 24 hours may be unpaid.
  • Sick leave accrues at 1 hour for every 30 hours worked, but employees cannot begin using it until after 90 days of employment.
  • Paid sick leave must accrue first.
  • Employers that do not wish to accrue sick time may offer the full 56 hours upfront to their employee.
  • If an employer does wish to accrue sick time, they must allow any unused sick time to carry over to the next year. No more than 56 hours can be carried over and employees may not use more than 80 hours of sick leave in a calendar year.
  • Employers must track sick time each pay period so their employee knows how much is available to them.

Mileage Reimbursement

The current federal mileage reimbursement rate is 58 cents per mile. This rate, which covers the cost of gasoline as well as general wear and tear on the car, should be used to calculate reimbursement payments to an employee who drives her own vehicle while on the job. Mileage reimbursement is not considered taxable compensation, so neither the employee nor the employer is required to pay any taxes on that portion of the compensation.

Note: Miles driven while commuting to and from the jobsite are not considered on the job. If the employer reimburses the employee for commuter mileage, it is considered taxable compensation.

INSURANCE

Workers Compensation Insurance: Household employers in Maryland are required to carry a workers compensation insurance policy if their employee earns more than $1,000 in a calendar year. Its very important insurance, which assists with medical expenses and lost wages if an employee has a work-related injury or illness. It also provides protection to the employer since workers who accept benefits generally forfeit their right to sue the employer regardless of fault. Whether its required in your situation or not, we recommend obtaining coverage. As part of the HomePay setup process, we can guide you to a policy for your childcare or senior care employee through our licensed insurance partner. It's a convenient, affordable solution for our clients. To obtain a free quote, or to purchase coverage, please contact All Risks, Ltd. at (800) 366-7475 ext. 4209 or email Clarke White at cwhite@allrisks.com.

Unemployment Insurance: Maryland unemployment insurance is a state-managed program that provides financial assistance to help laid-off workers make ends meet until they can find another job. This insurance is funded through taxes that employers are required to pay on wages paid to employees. These taxes flow into a general fund, and unemployment benefits are distributed from the fund to employees who are let go from their job due to no fault of their own. The Maryland Department of Labor, Licensing & Regulation (DLLR) determines whether or not an applicant qualifies for benefits after reviewing their online or paper application and/or by conducting a telephone interview. Benefits paid to a former employee by the DLLR may trigger a future tax rate increase for the employer.

Health Insurance: Household employers in Maryland are NOT required to pay for their employees health insurance. However, there is a tax incentive to do so. Families with only 1 employee can make contributions toward their employees health insurance premiums and treat the amount as non-taxable compensation. In this scenario, neither the employee nor the employer are required to pay any taxes on that portion of the compensation.

Note: Employers with 2 or more employees must purchase a policy through SHOP (Small Business Health Options Program) to gain this benefit. 

Families can direct their employees to www.care.com/benefits where they can search for health insurance policies and purchase coverage for themselves.

 

 

 

The information herein is general in nature and may not be applicable to or suitable for your specific circumstances. Accordingly, the information is not intended to be providing legal or tax advice, and should not be relied upon without the advice and guidance of a professional tax or legal advisor.