The Tax Laws Involved in Hiring Domestic Workers For Elderly

Elderly people who want to remain in their own homes often need domestic workers to assist them with day-to-day tasks. If you hire a housekeeper, caregiver, companion, personal attendant, private nurse or other worker, pay close attention to the tax laws.

cleaningThe laws related to domestic workers are confusing and poorly understood, but ignoring them can land you in hot water with the IRS — even decades from now.

You must generally pay Social Security, Medicare and federal unemployment taxes on wages paid to domestic workers who are considered “employees” under federal law. Currently, an employer pays tax at a 7.65 percent rate on an employee’s wages up to the amount of the wage base ($118,500 for 2015 and 2016). You also owe federal unemployment taxes and state taxes.

You must also file certain forms to report your household employee’s wages and the federal employment taxes.

However, you don’t have to bother with these requirements if:

  • You pay someone less than $2,000 in 2016 (up from to $1,900 in 2015).
  • You hire students age 18 or younger.
  • You hire occasional workers like painters or house-cleaning services.

Beyond that, you have to determine if domestic helpers are employees under your control or independent contractors in business for themselves.

It’s not a simple question, but if the workers come part-time and advertise or hand out business cards, they’re probably self-employed and responsible for their own taxes. On the other hand, a live-in housekeeper or full-time nanny who works in your home is an employee.

If you believe a worker is an independent contractor: Put the arrangement in writing and keep a copy of the person’s business card, brochure or advertisement.

Why do you need this protection? Sometimes, domestic helpers reveal the names of people they worked for when they apply for Social Security. Uncle Sam then sends out assessments for back taxes, penalties and interest — even many years later.

Need more information? Consult with your tax adviser to ensure you’re on the right track.

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