Household Payroll. Nanny Taxes. HR. Being a household employer can be complex, and the paperwork overwhelming. Cosset assists families in managing their household tax obligations. Use this guide to learn everything you need to know about household employment and how we can support you.
Who's a household employer?
The IRS defines a household employer as someone who hires an individual to perform duties in or around their home, while also controlling when, where, how, or by whom the work is done. Household employees can include nannies, medical caregivers, housekeepers, chefs, personal assistants, household managers, and others. Misclassifying these individuals as independent contractors can be considered tax evasion.
Your Tax Obligations
Household employers have three primary tax responsibilities to ensure compliance:
Withholding
Benefits
Taxes
- File state and federal employment tax returns and remit both employee and employer tax payments to the appropriate tax agencies.
The IRS mandates that the tax process be managed by you, the employer, making you responsible for compliance. If your employee claims they will handle it, be cautious. Non-compliance can lead to back taxes, penalties, and interest.
Household Employer Compliance Checklist
Ensuring compliance helps protect you from costly tax and legal issues, may entitle you to tax breaks, and provides your employee with important financial benefits. Families are legally required to fulfill the following obligations:
- Obtain household employer tax IDs (federal and state)
- File a New Hire Report
- Calculate employee tax withholdings and track all federal and state employer taxes
- Prepare and distribute pay stubs
- File quarterly state employment tax returns and remit state tax payments (including employee withholdings and state employer taxes)
- File federal 1040-ES four times per year and remit federal taxes (including employee withholdings and federal employer taxes)
- Prepare and distribute Form W-2 at year-end
- Prepare and file all required year-end forms with the state and the Social Security Administration
- Prepare Schedule H and file it with your federal income tax return
- Read and respond to periodic state and federal government notices and alerts
- Monitor ever-changing tax and labor laws
Most accountants and financial advisors are not experts in this specialized area of tax and payroll management. Discuss this checklist with your accountant, and we would be happy to collaborate with your tax preparer on your behalf.
Tax Breaks for Dependent Care Expenses
Families with care expenses who meet compliance requirements may qualify for at least one of the following tax breaks:
Flexible Spending Account (FSA)
- Also known as a “Dependent Care Account,” an FSA allows families to use pre-tax dollars to pay for a portion of childcare expenses. Enrollment details are available through your company's HR department.
Child or Dependent Care Tax Credit
- This tax credit enables families to itemize care-related expenses on Form 2441 when filing their federal income tax return.
Overtime
Most household workers are protected by federal and state laws requiring time-and-a-half pay for all hours worked over 40 in a 7-day work week. (Live-in employees are generally excluded from overtime protection under federal law and most state laws.) If overtime is included in a salary, the salary must be divided into regular and overtime pay rates, and the employee must agree to these rates in writing. For assistance with the language and calculations for your employment agreement, contact us.
There is no statute of limitations for overtime disputes, so it’s crucial to have a written agreement detailing the specifics of regular and overtime pay. Without this documentation, judges often side with the employee.
Business vs. Household Payroll
Families who own a business might be tempted to include their household employee within the company’s payroll and tax reporting process. This could be costly and is considered illegal. The IRS has determined that household employees do not directly contribute to the success of the business and should, therefore, be managed through the household payroll and reporting process.
Workers' Compensation Insurance
Many states require household employers to carry workers' compensation insurance. This protects your employee from financial issues resulting from work-related illnesses or injuries. You can usually obtain a workers' compensation policy from your existing homeowner’s insurance carrier. For more details about your specific situation, call us or visit cosset.com/payroll
Common HR Issues
As a household employer, you will likely face similar issues that businesses and corporations encounter with employees, including:
- Paid time off
- Traveling with your employee
- Overnight stays
- Work eligibility
- Reimbursements
- Health insurance
- Unemployment
- Disability
- Nanny-share arrangements
- Raises & bonuses
If you have questions about any of these topics, please give us a call. We are happy to provide free advice tailored to your specific situation.
Cosset: Your all-in-one no-stress solution
Cosset is designed to handle all your household tax obligations, and that's our sole focus. Cosset will take care of all the work we've listed above, and more.
One Contact. One Partner. We manage all aspects of household compliance, with everything reviewed by a single, accountable partner, ensuring you can rest easy.
Your Home is Our Focus .Households face unique regulations, exceptions, and exemptions that business-oriented payroll firms often don’t manage efficiently. We specialize in household issues, providing the expertise you need.
We’re There When You Need Us. Our live payroll, tax, and HR specialists are available to assist you whenever you call. Our family-friendly client site stores all your information, tools, and archived documents, so you can access what you need anytime.
A Relationship Built on Trust. We strive to be efficient to keep our fees as low as possible. No hidden fees. No surprises.
Cosset Payroll at-a-glance
From payday to tax time and every moment in between, we take care of everything—so you don’t have to. Here’s how:
Processing. We calculate your withholdings each pay period and summarize them for you in a preview email right before payday.
State and federal filings. Before each deadline, we prepare your employment tax returns, send you preview copies, and file all required returns with the appropriate tax agencies.
Customized Answers and Advice. Our specialists keep your employment profile at their fingertips, providing answers tailored to your situation.
Let Cosset take care of all your household payroll and tax needs. Visit cosset.com/payroll for more information of our services.
