Tax Rules for Domestic Help
Taxpayers who hire domestic help must follow the Internal Revenue Service's rules for reporting and withholding employment taxes for domestic workers. Taxpayers must pay their share of employment taxes through quarterly tax payments or through their annual tax returns. Taxpayers who have underpaid taxes during the year may be subject to an IRS penalty for failing to remit quarterly tax payments.
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Domestic Help Rule
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The IRS considers the domestic worker as a household employee if the taxpayer hires the domestic worker as an employee. Employers must withhold and pay their share of any employment taxes for the domestic employee if the domestic employee is not an employee of an employment agency providing household or domestic services.
Legal Verification
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Taxpayers who hire domestic workers to provide services on a frequent or regular basis must complete Form I-9 for the U.S. Citizenship and Immigration Services. By the domestic worker's first workday, the employer must verify the employee's legal ability to work in the U.S. The taxpayer hiring the domestic worker must complete the employer's section of the form, and examine the worker's proof of identification and legal employment status. The taxpayer retains the form for possible future review by a government official, and does not send it to the IRS or to the U.S. Citizenship and Immigration Services.
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Employment Taxes
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For 2011, taxpayers hiring domestic workers must pay their share of employment taxes for Medicare, federal unemployment taxes and Social Security taxes if the taxpayer paid at least $1,700 in wages to the employee. The total employment taxes equal 15.3 percent of the worker's wages. The employer is responsible for 7.65 percent or half of the 15.3 percent. The taxpayer hiring the domestic worker must withhold the entire 15.3 percent and either pay the domestic worker's share or require the employee to contribute the other half for withholdings.
Exceptions to Employment Taxes
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An exception exist for employers who hire their child who is under 21 to perform the domestic services, the taxpayer's spouse, a parent (unless the IRS excludes the parent under its other tax rules )or an employee who is younger than 18 years old. Additionally, taxpayers may need to pay their state's employment taxes if the state requires it.
Childcare Credit
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Taxpayers who hire domestic workers to care for their children in addition to providing household services may qualify for a tax credit of up to 35 percent of the total compensation the taxpayer paid to the domestic worker. To qualify for the tax credit, the taxpayer must be a working parent or actively looking for work. The domestic care must be for the taxpayer's dependent who is under 13. Taxpayers are limited to a credit of $3,000 for each dependent the domestic worker cares for.
Considerations
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Since tax laws frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.
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References
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