Tax Topic

Household Employees

The Social Security and Medicare wage threshold for household employees is $1,700 for 2011 (unchanged from 2010). This means that if you pay a household employee (nanny, housekeeper, etc, but see link below for definition) cash wages of $1,700 or more, you will have to report and pay Social Security and Medicare taxes on that employee's 2011 wages. If you do not report the wages on time, you may have to pay a penalty in addition to the overdue taxes. To file the various tax returns, including employment tax returns, you need an Employer Identification Number (EIN).

As the employer, you pay your share of the Social Security and Medicare taxes, along with the taxes you withheld from the employee’s wages, when you file your own tax return. The 2011 Social Security tax rate is 6.2% for employers and 4.2% for employees on wages up to $106,800. The Medicare tax rate is 1.45% of all wages for each of the employer and employee. You must also provide annual W-2 copies to your employee by January 31, and send a copy to the Social Security Administration by the last day of February.

We can do all of this for you if you wish. Or, we can give you some direction so that you can do it yourself. The difficult part is understanding the differences between the Federal EIN & payroll taxes, the State business license, and State employment agency payroll taxes; but once you get it straight, it's not too bad.

For more information, see Social security and Medicare wages in IRS Publication 926, Household Employer's Tax Guide: http://www.irs.gov/pub/irs-pdf/p926.pdf

Here is the IRS definition of household employee: http://www.irs.gov/businesses/small/article/0,,id=97877,00.html

Here is an IRS link to information on how to apply for an Employer Identification Number (EIN).: http://www.irs.gov/taxtopics/tc755.html

Here is a link to the Social Security Administration: http://www.ssa.gov/pubs/10021.html?cm_sp=ExternalLink-_-Federal-_-SSA

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