If you hire someone to work in your home -- such as a housekeeper, a maid, a nanny, or a gardener -- and you have control over how the person performs the work, in most cases, the IRS will consider you an employer. And, as an employer, you may have to pay employment taxes (also known as the "nanny tax").
Employment taxes that you may have to pay include:
Social Security tax
Medicare tax
Federal unemployment tax
You may have to pay Social Security / Medicare taxes, federal unemployment taxes, or both.
Social Security and Medicare
If you pay a household employee cash wages of $1,700 or more in 2010, all cash wages paid to that employee in 2010 (regardless of when the wages were earned) are social security and Medicare wages, and you owe Social Security and Medicare taxes on all of those wages. If you pay the employee less than $1,700 in cash wages in 2010, none of the wages paid to the employee are Social Security and Medicare wages, and you do not owe Social Security or Medicare tax on those wages.
The rules regarding payment of Social Security and Medicare taxes don’t apply to employees under age 18, your child (under age 21), your spouse, or, in many cases, your parent.
Federal unemployment tax (FUTA)
If you pay cash wages to household employees totaling $1,000 or more in any calendar quarter of 2010, the first $7,000 of cash wages paid to each household employee in 2010 and 2011 are FUTA wages (a calendar quarter is January through March, April through June, July through September, or October through December). If the employee's cash wages reach $7,000 during the year, do not figure the FUTA tax on any further wages paid to that employee during the rest of the year.
If the cash wages paid are less than $1,000 in each calendar quarter of 2010, but you had a household employee in 2009, the cash wages you paid in 2010 may still be FUTA wages. They are FUTA wages if the cash wages paid to household employees in any calendar quarter of 2009 totaled $1,000 or more.
The rules regarding payment of federal unemployment tax don’t apply to your child (under age 21), your spouse, or your parent.
You’re not required to withhold federal income tax, but you may do so if your employee requests it.
A separate Form W-2, Wage and Tax Statement, is filed for each household employee to whom you pay either of the following during the year:
Social Security and Medicare wages of $1,700 or more (for tax year 2010).
Wages from which you withheld federal income tax
You must file Schedule H with your individual income tax return to report household employment taxes if, in 2010, you paid any of the following:
Cash wages of $1,700 or more to any one household employee
FUTA wages (total cash wages of $1,000 or more in any calendar quarter to all household employees)
Any wages to household employees from which you withhold federal income tax
If you’re required to file Schedule H or Form W-2, you must have an employer identification number (EIN). You can get one by filing Form SS-4.
To learn more, see Publication 926, Household Employer’s Tax Guide.