Table of Contents
- What Is a Household Employee?
- Key Takeaways
- Understanding Household Employees
- Important Note on Taxes
- Examples of Household Employees
- Special Considerations: Taxes
- Fast Fact
- What If a Household Employee Asks To Be Paid Under the Table?
- Is the Person Who Mows My Lawn an Employee?
- What Types of Taxes Does the Household Employer Pay?
- The Bottom Line
What Is a Household Employee?
Let me explain what a household employee really is. You're looking at someone hired and paid by a homeowner like you to handle services right in the home, and their work is directed by you, the employer, not something they decide on their own.
A household employee, or household worker as it's sometimes called, gets paid to provide services at or inside your place of residence. You, as the employer, pick what kind of work they do and how they should go about completing it.
Now, if the person you hired is the one calling the shots on what gets done and how, the IRS sees them as an independent contractor, not an employee. That's a key distinction you need to get right.
Key Takeaways
Household employees stick to providing services at or within your household. The IRS labels someone a household employee if you decide and direct their work. On the flip side, if they handle determining the work and its execution, they're an independent contractor.
Think of nannies, babysitters, housekeepers, and gardeners—they all fit as household employees. And remember, as of 2020, any new household employees have to fill out the revised W-4 form, but if they were hired before that, no new form is needed.
Understanding Household Employees
A household employee can be full-time or part-time for you. You might find them through an employment agency or a list from a labor organization. Payment can be hourly, daily, weekly, or even per job—it's flexible.
As I mentioned, the IRS draws the line between household employees and independent contractors based on control: if you determine not just the work but how it's done, they're your employee. If the worker calls those shots, they're an independent contractor, supplying their own tools and offering services to the public like a business.
Location plays a role too. For instance, a childcare worker in your home could be a household employee, but the same services in a daycare center make them an employee of that center.
Important Note on Taxes
Here's something crucial: the IRS doesn't make you withhold federal income tax from a household employee's wages—that's different from FICA taxes. But if your employee asks for it, you can choose to withhold it.
Examples of Household Employees
Common ones include babysitters, caretakers, cleaning people, domestic workers, drivers, health aides, housekeepers, maids, nannies, private nurses, and sometimes gardeners or yard workers.
Independent contractors? Those are your repairmen, carpenters, and plumbers. Yard workers might be independent if they run their own show, or they could be from a service company.
Special Considerations: Taxes
As of 2024, if you pay a household employee more than $2,700 in cash wages over the tax year, you have to withhold and send the right amount for their Social Security and Medicare taxes— that's FICA—to the IRS. You might owe state taxes too.
The employee's share is 6.2% for Social Security and 1.45% for Medicare, totaling 7.65%. You, as the employer, pay your matching 7.65% out of pocket, making the full rate 15.3%.
Taxes for household employees can seem tricky, but payroll services exist to handle a lot of it for you. New hires since 2020 use the redesigned W-4 form; pre-2020 hires don't need a new one.
Fast Fact
These taxes on household employee wages are often called the nanny tax.
What If a Household Employee Asks To Be Paid Under the Table?
You should know it's illegal to pay them without withholding taxes. Doing that puts both you and the worker at risk with the IRS.
Is the Person Who Mows My Lawn an Employee?
If they bring their own equipment, tools, maybe extra help, control how the job's done, and do the same for your neighbors, no—they're an independent contractor.
What Types of Taxes Does the Household Employer Pay?
You pay FICA taxes for Social Security and Medicare, known as payroll taxes because they're withheld from wages. Employees pay half of the 15.3% total, you pay the other half; self-employed folks cover it all themselves.
The Bottom Line
A household employee is paid by you, the homeowner, to provide services in your household, with you directing the type of work and how it's done. They use your tools or equipment, and you'll withhold taxes from their wages as required.
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