Paying for care
Household employer and nanny tax
A household employer is a person who pays someone to work in or around their home and controls how the work is done. Household employers may owe Social Security, Medicare, and unemployment taxes. The informal name for these taxes is the nanny tax. They are reported on IRS Schedule H.
Why it matters for your family
A family that hires a caregiver directly, instead of through an agency, may be a household employer. IRS Publication 926 explains the rules. A wage threshold, which the IRS updates each year, decides when the taxes apply. The family also needs an employer identification number and files a Form W-2 for the worker. A common mistake is to call the caregiver an independent contractor to avoid taxes. The IRS looks at who controls the work, not the label. A tax professional can confirm what applies. Hiring through an agency usually means the agency is the employer.
Source: irs.gov
Read more: How to Get Started with Hiring In-Home Care
Related terms
- W-2 employee versus 1099 contractorA W-2 employee works under the employer's direction and has taxes withheld by the employer.
- Workers' compensation for caregiversWorkers' compensation is insurance that pays medical costs and part of lost wages when an employee is hurt at work or gets a work-related illness.
- Private duty caregiverA private duty caregiver is a non-medical caregiver paid directly by the family or through an agency to provide one-on-one help at home.
- Caregiver registryA caregiver registry is a service that lists caregivers and matches them with families.
- Home care agencyA home care agency is a company that employs or contracts caregivers and sends them to clients' homes.
- Medical expense tax deductionThe medical expense tax deduction lets people who itemize deduct medical and dental costs above 7.5 percent of adjusted gross income.
