Household Staff & Taxes: Your Questions Answered

The BAHS Team thought this week would be a good time to sit down with our payroll partner GTM and explore some common household staffing tax and payroll questions, plus share some of their free online resources. If you’d like to schedule a free consultation with GTM to learn more about how they can help you, please click here.

With GTM’s payroll service, payroll and tax professionals will manage all of the wage, tax, and labor rules that come with every household staffing situation.

Can I classify my domestic workers as independent contractors and avoid paying household employment taxes?

The IRS considers domestic workers to be employees and not independent contractors. It comes down to a matter of control. A household employer sets their staff’s schedule, gives instructions on how tasks should be completed, and provides tools and equipment for their staff to do their jobs. Misclassifying domestic workers as independent contractors is considered tax evasion.

How much will I owe in household employment taxes?

Typically, a household employer will pay about 9-12% in taxes on top of an employee’s gross wages. An employer owes 7.65% for Social Security and Medicare (FICA) and 6% on the first $7,000 of gross wages for federal unemployment (FUTA). There will likely be state unemployment taxes, which vary by state, but usually fall around 3-4% of wages up to the state’s wage base. If you have a hired a nanny or senior caregiver, you may be able to use a Dependent Care FSA (offered through your employer) and/or the Child and Dependent Care Tax Credit to offset your tax obligations.

How do I pay my household employment taxes?

Federal household employment taxes can be paid quarterly using Form 1040-ES. You should remit both your share and your employees’ shares of FICA as well as your FUTA taxes. If you choose to withhold income taxes from your employees’ pay, that should be remitted as well. Waiting to pay household employment taxes with your personal income tax return could result in an underpayment penalty. Your state tax agency may also require quarterly tax filings.

What is workers’ compensation insurance, and do I need coverage?

Workers’ compensation provides cash benefits and/or medical care for workers who are injured or become ill as a direct result of their job. Most states – including California, Connecticut, Massachusetts, New Jersey, and New York – require household employers to obtain coverage. Workers’ compensation will likely need to be separate policy. In California and New Jersey, coverage can be added to a homeowner’s policy. Not having the appropriate policy in place is one of the costliest mistakes a household employer can make with fines and penalties quickly reaching into the tens of thousands of dollars.

Schedule a Free Consultation with GTM

Further Resources from GTM

How to Catch up on Nanny Taxes in 8 Steps

Why You Shouldn’t Give Your Nanny a 1099
(Note that while this article focuses on Nannies, this information holds true for other types of household staff, including Personal Assistants and Housekeepers)

How to Create a W-2 for Your Nanny

State-by-State Guide to 2024 Minimum Wage Rate Increases

Nanny Tax Calculator

Nanny Tax Guide