Have you been using some help around the house? Hiring a babysitter or other house staff could be a luxury or a necessity. Regardless, this activity, under the right circumstances, could affect your taxes.
If you hire a babysitter or other house staff, you may need to:
- Report the amount you paid to this employee to the IRS when you file your taxes.
- Pay employment taxes, income taxes, and unemployment taxes on behalf of your employee.
- Keep adequate records of the activity.
For this reason, many people wisely choose to use a service like TurboTax to figure out and report taxes for household employees. However, for today’s article I’m going to assume you want to know at least the basics so that you can make an informed decision.
To determine whether your babysitter or other house staff will affect your taxes, you first need to answer this question:
“Is your babysitter or other house staff a “household employee”?”
If you have a household employee, you are responsible for their employment taxes, just like any other employer would be. Federal employment taxes include social security, medicare, FUTA, and federal income tax.
Publication 926 explains precisely how to define a household employee. Essentially, a household employee is a person that works for you in and around your home to complete work directed by you.
A household employee is NOT an independent contractor – someone who has their own tools, has multiple clients like you, and is directing their own work. It doesn’t matter how much time you’ve hired this person to work. What matters is their dependence on you to instruct them about their work and whether they are established enough to be doing their own quarterly tax work.
An example of a household employee would be a person who works for you a few hours a week at your home and does a bit of cleaning and some babysitting while you get some other things done. The handyman who comes to your house routinely, but has his own tools and offers his services to the general public is an independent contractor.
If you’ve established that your babysitter or other house staff is a household employee, you need to look at how much you are paying them each year and each quarter.
“Did you pay your babysitter or other house staff more than $2,000 this year, or at least $1,000 in one quarter (over the Summer, for instance)?”
If you paid your babysitter or other house staff $2,000 or more in 2016 or at least $1,000 in one quarter of 2016, then you will likely have to report the amount you pay to your household employee and pay employment taxes when you file your taxes. Less than those amounts and you can likely avoid having to report this activity.
TurboTax will ask you simple questions and help determine if you need to report the activity of this household employee and pay the taxes based on your answers when you file.