Social Security Tax/Medicare Tax (FICA). If you have household workers, you are required to withhold and pay FICA taxes if cash wages paid in 2015 total $1,900 or more. There is one limited FICA exception for wages paid to household workers who are under 18 (the so-called baby-sitter exception). Social Security and Medicare tax doesn't apply at all to these workers if domestic work is not their principal occupation. This exception may help with steady evening and weekend baby-sitters.
You are required to file a Form W-2 for every domestic employee whose wages are subject to the Social Security Tax/Medicare Tax. And you will need to get an Employer Identification Number for yourself, which is not the same as your social security number.
Unemployment tax (FUTA). You must pay the FUTA tax for any household worker whom you pay $1,000 or more in a calendar quarter. The effective FUTA tax rate varies state by state.
Federal income tax withholding. You are not required, but your household employee can ask you to withhold federal income tax.
State considerations. There may be other tax complications as well. For example, depending on state law, many employers of household help may have to file and pay state unemployment insurance tax for each quarter in which the state wage threshold is reached. And the rules may be somewhat different if you have other employees.
Payroll tax paperwork. The FICA and FUTA you owe for any household employee is computed on Schedule H of Form 1040 and included in your tax liability.
At the beginning of each year, you must estimate the total amount of FICA, FUTA and federal income taxes that will be owed with regard to any domestic employees you will employ during the year. This amount, which includes both the employer's half and the worker's half of the FICA taxes, must be added to the amount withheld from the employee's paycheck or to the employer's quarterly estimated income tax payments.
Remember, all of these expenses may qualify for the child and dependent care credit - see article in this newsletter.