Most people don’t think of themselves as an employer but if you have a nanny to help with the kids or a caregiver to help with elderly family members, you just might be an employer. Do you have to do anything special if you hire a nanny or a caregiver?
The IRS and the state of Virginia provide specific guidelines for employers of household help. The IRS defines a household employee as anyone hired to do household work where you control what duties they have and how they perform them.
If you have someone who qualifies as a household employee and you pay them more than $1800 a year, you need to make sure you are following the appropriate federal and state guidelines for payment and reporting. Generally, you will be responsible for FICA taxes and unemployment taxes and possibly withholding taxes. In these cases, you would also be responsible for issuing a W-2 to the household employee at the end of the year.
The employer reports and submits the FICA and federal unemployment taxes annually when they file their individual tax return. A Schedule H is used to report the annual wages and calculate the FICA and unemployment taxes due. This schedule is then attached to the tax return.
The Virginia department of taxation will require an annual report to be filed with payment. This form is separate from your individual tax return. The household employer would also have to pay Virginia unemployment taxes which are filed and paid on a quarterly basis unless an annual exception is granted.
Navigating the waters of household employment can be tricky. Often the penalties for non-compliance are greater than the actual cost of the taxes and reporting requirements. If you are unsure if you have a household employee or if you are unsure if you are reporting it correctly, seek out the help of someone who is trained and has experience with household employees.