How do I report payments made for a household employee?

In this week’s Tax Tips, Tax Principal Kevin Hickman and Tax Team Member Lauren Nolin answer the question, “How do I report payments made for a household employee?”  Click here for video.

With the popularity of Downton Abbey, some taxpayers may be compelled to employ maids, nannies or even butlers.

If you paid $1,900 or more to a household worker in 2015, you are liable under the infamous “nanny tax” rules.

This tax could apply to any household worker such as a gardener, maid, butler, housekeeper, or nanny for small children or aging parents.

If you fall under these rules, you would treat the household employee just as regular employees.  Therefore, you would withhold social security and Medicare tax and potentially federal income tax.

These wages and taxes are reported on Schedule H.  This form is included on your individual income tax return, Form 1040.  If you do not make quarterly estimated payments, these employment taxes will be paid when you file your return.

This can be a bit of surprise to taxpayers. If you know you will be liable for the “nanny tax,” you should consider these taxes when you determine your withholding levels at the beginning of the year or when your quarterly estimated payments are computed.