Every year, the IRS and/or various federal and state agencies make changes to tax, payroll or labor laws that affect how families manage their household employees, or how nannies and caregivers have to manage their own taxes. 2023 is no different so we wanted to give you a heads-up on what’s changing next year so you can avoid mistakes or misunderstandings. Not every change may be applicable to your situation, but here are the four things that will affect a significant number of families and caregivers in 2023:
1. Your personal income tax return will call out household employment income
In the past, when you filed your income tax return, you were probably prompted with a question about having “other income” that you didn’t receive a W-2 from. Depending on what service you used, that prompt may or may not have included household employment income as one of the examples. The IRS’ new 1040 form (personal income tax return) now specifically calls out “household employee wages not reported on Form(s) W-2,” which is significant because they’re wanting to make sure part-time caregivers and employees paid under the table are reporting their wages.
If you paid your household employee off the books in 2022, there’s time to correct this mistake before your tax return is due, and HomePay can help you take care of it quickly and efficiently.
2. The threshold for having to pay “nanny taxes” increases to $2,600
In 2022, if you hired a nanny, senior caregiver or other household employee and paid them at least $2,400, you were responsible for withholding taxes from them and paying taxes of your own. The IRS is increasing this threshold by $200 in 2023 to $2,600. While this doesn’t affect families with full-time care needs, it’s important for those hiring short-term or part-time care. And if you’re a caregiver who works these types of jobs, you’ll need to keep this figure in mind when you’re speaking to families about working for them.
3. Minimum wage goes up in 15 states
The federal minimum wage of $7.25 per hour has not increased since 2009, but many states have higher minimum wage rates and these frequently increase. As of January 1, 2023, Arizona, California, Colorado, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, South Dakota, Virginia and Washington will have a higher minimum wage than last year. Check out our state-by-state guides to make sure you’ll be compliant with these new pay rates.
4. Reimbursement for parking and mass transit services increases
The IRS allows for families to make certain non-taxable benefits, such as fees for parking and using mass transit, part of their household employee’s pay. Both of these benefits are increasing from $280 to $300 per month in 2023. It’s a creative way to not only provide something a caregiver needs in their day-to-day life, but also do it in a way that saves money for both parties.