As a rule, the Internal Revenue Services considers salaries and payroll taxes for household employees to be personal expenses for the employer, and therefore non-deductible. However, two exceptions exist that may allow you to deduct your portion of an employee's payroll taxes. In-home care for a dependent without medical issues does not qualify, and although the salary you pay someone to care for a healthy child while you work may be deductible as a childcare credit, the taxes are not.
If a household employee is providing service as a caregiver for a disabled individual who qualifies as your dependent, you can deduct your portion of the Social Security and Medicare taxes, as well as your payments for federal and state unemployment taxes for the caregiver. These taxes qualify as medical expenses. Taxes you withhold and then remit on a caregiver employee's behalf, such as federal income tax, are not deductible expenses for you. If you hire someone as a benefit to your general health, expenses are not deductible, even if your doctor advises you to engage help with household chores.
Claiming Deduction for Medical Expenses
To claim a deduction for medical expenses, you must itemize deductions and complete a Schedule A. The option is available only for those filing a Form 1040, not a Form 1040EZ or 1040A. You can deduct on those medical expenses in excess of 7.5 percent of your adjusted gross income.
Employee's Services Necessary for a Disabled Person to Work
If you have a mental or physical disability that limits your employment options, you may be able to deduct your portion of the payroll taxes for a household employee hired to enable you to work. The employee's services must be necessary to your ability to perform your work. The expense cannot qualify under any other tax law. Only the portion of the expense directly related to your work is deductible. As an example, if you hire a sign language interpreter for work, but occasionally ask her to accompany you when shopping, the associated taxes for the shopping excursions are not deductible.
Claiming Deduction for Payroll Taxes for a Work Assistant
The IRS considers expenses a disabled individual pays to be able to work as a business expense. Self-employed individuals deduct the cost of the salary and payroll taxes with other expenses for the business. Depending on your circumstances, this may be a Schedule C, E, F or C-EZ. If not self-employed, you will need the Form 2106 or Form 2106-EZ to claim unreimbursed employee expenses. Report the amount from this form on line 28 of your Schedule A form. Business expenses you incur due to an impairment, including your portion of an assistant's payroll taxes or special equipment such as a TTY device, are not limited to the same 2 percent of adjusted gross income rule as other business expenses.