You may know that you have to pay taxes for your full-time nanny, but what about that after-school sitter who watches your daughter for a couple hours each day? Or the housekeeper who cleans your home regularly? This article will address a variety of scenarios, including:
- What caregivers qualify as household employees
- How dog walkers should be managed
- What to do about your regular babysitter
- When your part-time caregiver goes full-time
- How taxes work for a housekeeper
- Tax responsibilities for hiring a family member
According to the IRS, if you pay a caregiver $2,300 or more in a calendar year, you’re responsible for withholding and paying taxes as a household employer. But there are some nuances in the law. Recognizing when taxes come into play can definitely be confusing, so here are a few answers to common questions that families have about hiring part-time help.
“If you hire a part-time caregiver who doesn’t work through an agency or through her own company, and if you give specific instructions on what work you want done and how, that person is considered a household employee,” says Lisa Weinberger, an attorney specializing in employment law and founder of the Law Office of Lisa Pierson Weinberger.
So even though you may think taxes are only for nannies or full-time senior caregivers, the IRS isn’t concerned about what you call the person. It’s really more about the nature of the employment relationship and how much the person earns from you.
Most dog walkers walk other dogs, in addition to yours. This means your dog walker is probably juggling your ideal schedule with that of all the other families needing their service. Most likely, your instructions to them are pretty vague in terms of when they come by, the route they take, what to do once the walk is over, etc. The IRS is most likely not going to see this as an employment situation where you will have to worry about taxes.
There is a term called the “casual babysitting exemption” that the IRS refers to when describing a caregiving situation where taxes do not come into play. The reason, however, is because the family never crosses the $2,300 threshold requiring them to withhold taxes from their caregiver — not because their job title is “babysitter.”
For all intents and purposes, a babysitter is looked at just like a nanny in that if they must adhere to the schedule you set and come to your home to take care of your kids based on the rules you set, the IRS will most likely view this as an employment relationship. And taxes can sneak up on you quickly. If the babysitter earns just $12/hr. and works even 10 hours per week, you’ll cross the $2,300 tax withholding threshold in less than 5 months.
You may have done a great job anticipating your care budget for the summer, but your care needs can change at a moment’s notice and you may end up needing your nanny when the school year begins. “Lots of families get into trouble when their caregiving situation changes from part-time to full-time,” says Tom Breedlove, Sr. Director of Care.com HomePay. “You may not have crossed the $2,300 threshold during the summer, but you certainly will once your nanny continues working for you.”
You don’t want to discover in December that your nanny earned $8,000 for the year and you’ve missed several tax filing deadlines. You’ll have to scramble to establish federal and state IDs and file back tax returns with the state — all before the end of January.
This depends entirely on the nature of the work they’re performing. Many housekeepers are employees of a business, which would make taxes unnecessary, even if the same person is showing up to your home every time you request service.
However, if you’re hiring someone to come to your home multiple times per week to clean based on a schedule you’re setting, it’s possible they would be your employee and bring taxes into the equation. The IRS has a section of their website where you can troubleshoot whether someone is your employee or self-employed. Other clues that may lean toward the housekeeper being your employee would be if they’re using the cleaning materials you provide and are taking specific direction from you on what areas of your house to clean on certain days.
The IRS doesn’t require you to go through the household employment tax and payroll process if care is provided by your spouse, your child under the age of 21 or a parent. However, if you pay your parents or in-laws to care for their grandkids, they are still required to report those wages on their personal income tax return.
These scenarios are obviously not an exhaustive list, but hopefully you have a better understanding on how certain part-time employment situations should be handled. You can always get a formal employment ruling from the IRS by submitting a Form SS-8 if you want to be 100 percent certain.
Your Next Steps:
* The information contained in this article is general in nature, may not be applicable to your specific circumstances, and is not intended to be a substitute for or relied upon as personalized tax or legal advice.