Your family may need outside assistance to provide care and supervision for your children or elderly parents while you work. You may hire cleaning help or a landscaper to assist with the upkeep of your home or someone to walk your dog during the work week. These lifestyle choices simplify your daily routine, but there are rules you must follow when compensating your domestic workers.

Taxpayers who hire people to perform domestic services may be responsible for paying certain employment taxes for their workers. If, during any calendar year, a taxpayer pays a household employee such as a babysitter, house cleaner, yard worker, cook or driver above a certain dollar amount in wages, the taxpayer must pay social security and Medicare taxes (FICA). In addition, the taxpayer may be responsible for federal unemployment tax (FUTA) for that employee.

There are general rules for domestic workers with exceptions and special rules for babysitters in the home, the employment of family members and domestic workers under 18 years of age. A taxpayer who employs a domestic worker can benefit from tax planning for the payment of taxes and filing of the required tax forms.

If a taxpayer pays a household employee (e.g., babysitter, house cleaner, yard worker, cook or driver) $1,700 or more in 2009, the taxpayer must pay social security and Medicare taxes (FICA). In addition, if an employer pays one or more domestic employees cash wages totalling $1,000 or more during any calendar quarter in the current year or the previous year, the employer must pay federal unemployment tax (FUTA) for the whole year on wages paid to all domestic employees. However, the tax applies only to the first $7,000 paid to each worker in the year.

Depending on your circumstances, it may be beneficial for you to determine your status and review your overall tax plan to determine if you have additional tax filing responsibilities. Let us know if we can help.