Family Member Care and the IRS

Do you hire household help? Babysitters? An au pair? Nannies? Health aides? Caretakers? If you hire individuals who work in your home, you are an employer and have tax responsibilities for your household employees. The rules can get complicated.

If you pay cash wages of $2,200 or more to a household employee (in 2020), both you as an employer and your household employee need to pay Social Security and Medicare taxes, just as with any other employer-employee relationship. Usually, you don't have to withhold or pay FICA taxes on salary paid to your spouse, your children under age 21, a parent, or an employee under age 18 unless performing household work is their principal occupation. You will need to issue a Form W-2, Wage and Tax Statement, to employees and also complete Form W-3, Transmittal of Wage and Tax Statement.

If your household employee asks you to withhold federal income tax from wages, then have the employee complete Form W-4, Employee's Withholding Allowance Certificate, for you. However, employers don't need to withhold federal income tax from wages they pay to a household employee.

You need to pay federal unemployment tax if you paid cash wages totaling more than $1,000 to household employees in any calendar quarter during the calendar year or the preceding calendar year. The general rule is to pay FUTA tax on the first $7,000 of cash wages paid to each household employee. You don't have to count wages paid to a spouse, parent, or child under 21. (There may be additional complexities involving state unemployment funds.)

Are you employing foreign home help, commonly known as an au pair? Know that au pair wages usually aren't subject to Social Security and Medicare taxes because au pair status is as a J-1 nonimmigrant — a nonresident alien. However, because au pairs include wages in gross income and need to file U.S. individual income tax returns, they need to apply for a Social Security number.

If your au pair previously had been in the U.S. as a student, teacher, trainee or researcher in F, J, M or Q nonimmigrant status, then your au pair may be a resident alien during his or her current stay here. Although dollar thresholds apply, your family as the host family must withhold Social Security and Medicare taxes and pay federal unemployment tax.

This is just a summary of what can be a complicated tax situation, and dollar thresholds, as well as immigrant regulations, can change quickly. If you are employing someone, or even considering it, it's best to get professional advice.

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