Many of us depend on outside help to keep the house, mind the kids or meet the needs of aging relatives. But pay their taxes? That’s something else.
It took Nannygate, when several top government appointees found their ways blocked because they neglected to pay taxes or other required benefits for household employees, to give the matter new significance.
The issue played a key role in the failed nominations of Zoe Baird and Kimba Wood for U.S. attorney general and in the recent heated California Senate race between Dianne Feinstein and Mike Huffington.
Most everyone who has a housecleaner or neighborhood kid who mows the lawn avoids or ignores Internal Revenue Service and Social Security tax rules. As few as 10% of Americans who employ household help and pay them more than $1,000 a year pay employee taxes.
But like the company you work for, which pays taxes on your salary, you could be required to do the same for those who work for you.
“If you are not a high-profile person, the risk is very low. But you are breaking the law,” said Chad Turner, author of “Employing Household Help--How to Avoid Legal and Tax Problems.”
“If, in the future, you’re found out, or there’s a problem, you may be held liable,” the certified public accountant said from his office in Torrance.
“You make a choice. Either you comply with the law or not. It should not be an optional issue. . . . Paying taxes should be a condition of employment.”
Turner cited an example of a household worker who upon retirement found he was ineligible for adequate Social Security benefits. He, and his former employer, suffered.
Under tax laws outlined in the Social Security Domestic Employment Reform Act of 1994, if you pay someone who works in your home $1,000 or more a year, this person is an employee. You are responsible for paying taxes and contributing to Social Security.
Generally, Social Security taxes amount to about 15.3% of an employee’s pay, Turner said. A $50-per-week worker would cost less than $400 a year in Social Security taxes. State and local taxes are extra but much less.
These expenses are not tax deductible by the employer.
“If you’re hiring household help for personal use, it’s not a business expense,” Turner said. “It’s seen as optional.”
However, if the person you hire brings their own tools--a plumber or a cleaning service--he or she is considered an independent contractor and you are exempt from paying taxes.
If you have employed an undocumented worker continuously since before Nov. 7, 1986, when several Immigration and Naturalization Service statutes took effect, you are not in violation of criminal laws against hiring such workers.
Should you decide to act as a sponsor for someone’s green card, which gives them permission to live and work permanently in the United States, agree on this before the person is hired, Turner advised.
Regardless of the status of your household help, minimum wage laws apply.
Minimum wage of $4.50 an hour is due anyone who works as a domestic-service employee and is either paid cash of $50 per calendar quarter or who works more than eight hours for one or more employer in any work week.
There are two exemptions to the minimum-wage rules--baby-sitters who work on a casual basis of less than 20 hours a week in the place where the child lives and live-in companions to the aged and infirm.