By Lyssa Kemper, CPA – Partner
If you hire someone to help in your home, whether a nanny, housekeeper, or caregiver, you may be considered a household employer. Many people don’t realize that hiring domestic help comes with tax and legal responsibilities. This guide will help you understand whether your worker qualifies as a household employee, the tax obligations involved, and how to ensure compliance.
WHO IS CONSIDERED A HOUSEHOLD EMPLOYEE?
A household employee is someone you hire to perform work in your home, and you control what work is done and how it is done. It doesn’t matter whether they were hired directly or through an agency, the key factor is the degree of control you have over their tasks.
EXAMPLES OF HOUSEHOLD EMPLOYEES
- Nannies and Babysitters
- Housekeepers and Maids
- Gardeners and Landscapers
- Caregivers
WHO IS NOT A HOUSEHOLD EMPLOYEE?
- Independent contractors (plumbers, electricians, or repair workers)
- Temporary workers from an agency (if the agency controls their pay and work)
- Professionals including tutors, private secretaries, or librarians (even if they work in your home)
EMPLOYER RESPONSIBILITIES: WHAT YOU NEED TO DO
If you qualify as a household employer, there are several legal and tax obligations you must fulfill.
1. Obtain an Employer Identification Number (EIN) – You must apply for an EIN with the IRS, which is used to report employment taxes. When applying, you’ll need:
A. Your full name and Social Security Number (SSN)
B. Your home address and county
C. The date you became a household employer (which affects your tax filing deadlines for your first filing.)
2. Register for State Unemployment Insurance (UI) – Most states require employers to register for unemployment insurance to cover workers who lose their jobs. Each state has different requirements, but common details you’ll need include:
A. Your SSN and contact information
B. The date you began paying wages of $1,000 or more
C. Employee start dates and payment history
3. Collect Required Employee Documentation – Before paying your household worker, ensure you gather the following:
A. Form I-9 (Employment Eligibility Verification) – Confirms legal work status
B. Federal and State W-4 Forms – Determines tax withholding
C. Direct Deposit Information (if applicable)
4. Understand Payroll and Tax Requirements – Unlike traditional employers, household employers must follow special tax rules.
A. Federal Tax Filing:
- No quarterly Form 941 or annual Form 940 is required
- No withholding or FICA payments throughout the year
- W-2 Form must be issued to employees if you pay them $2,600 or more annually
- Schedule H (Form 1040) is used to report and pay Social Security, Medicare, and federal unemployment taxes
B. State Tax Requirements:
- Some states require quarterly or annual unemployment tax filings.
- State withholding may be required depending on your location.
- Some states require filing a separate W-2 form for state tax reporting.
COMMON CHALLENGES AND BEST PRACTICES
Managing household payroll involves ongoing compliance and coordination. Here are some key tips:
✅ Plan Before Hiring – Set up payroll accounts before bringing a worker on board to avoid tax penalties.
✅ Stay Proactive with Reporting – Address payroll and tax issues immediately rather than fixing mistakes later.
✅ Close Accounts When No Longer Hiring – If you stop employing household workers, officially close payroll accounts to avoid unnecessary tax filings.
✅ Use Payroll Software – Automating tax filings and payments can save time and prevent costly errors.
FINAL THOUGHTS
Hiring household help brings many benefits, but it also comes with legal and financial responsibilities. Understanding tax requirements and properly classifying workers can help to avoid penalties and ensure compliance.
For assistance with household payroll and payroll taxes, contact our Client Accounting/Advisory team at 847-982-0333. We’re here to simplify the process so you can focus on what matters most—your home and family.
NEED HELP MANAGING HOUSEHOLD PAYROLL?
Our firm specializes in household employment tax compliance. Contact us today for a consultation and let us handle the details for you.