A Complete Guide to Household Employee Payroll Service

A guide to payroll services for household employees

Every individual or organization is liable to pay their employees. So, if you have household employees, then you are obligated to mention it in your state and federal returns. Household Employees are also named “Domestic Service Workers,” who work inside or around the house. A household employee is someone you engage in doing labor in or around your home and who is subordinate to you. According to Internal Revenue Service (IRS), all the Payroll Services for Household Employees include:

  • Nannies
  • Housekeepers
  • Gardener
  • Caretaker
  • Drivers and others

All the mentioned employees work around or inside to earn cash.

Minimum Wages for Payroll Services for Household Employees

As mentioned by the Fair Labour Standards Act (FLSA), every household employer should have to pay the minimum wage of $7.25 every hour, including overtime pay for shifts overstepping 40 in a week. High standards should prevail if the hour law applies to federal and state wages for Payroll Services for Household Employees.

Taxes on Payroll Services for Household Employees

Suppose you pay cash wages to household employees, with some rare exceptions. In that case, you should withhold Social Security And Medicare Taxes Refunds from their paychecks and produce your section of the taxes(it may change annually). You can also pay your employees a share of social security and Medicare taxes from your pocket if you want.

You and the person who works in your home can both owe social security and Medicare taxes. Your portion of the employee’s social security and Medicare wages is 7.65%, i.e., 6.2% for social security tax and 1.45% for Medicare tax. 7.65% of the total is paid by your employee also. If you pay an employee’s wages in excess of $200,000 in a calendar year, you must deduct a 0.9% Additional Medicare Tax on top of the 1.45% Medicare tax that is already withheld from those wages.

However, if employees appeal to you to withhold federal income tax, and if you agree, you should have to uphold it for the Payroll Services for Household Employees.

Documentation for Payroll Services for Household Employees

documentation for Pyroll Services for household employees

Fair Labour Standard Act (FLSA) demands that all Employers keep some essential record of their professional payroll services, including:

  • Name
  • Working hours (for both daily and weekly)
  • Social Security Number
  • Cash Wages (weekly)
  • Overtime Wages
  • The amount Employers claim for Accommodation

Work schedules and timecards must be remains for at least 2 years. This Payroll record is necessary to calculate Wages for Household Employees.

Employers Need to File a W-2

You must pay Federal Unemployment Tax if you pay total cash wages above a specific regularly to adjust the minimum to Household Employees. File a W-2 for Household Employees dependent on Social Security and Medicare Taxes.

You still must file a W-2 for Household Employees who do not depend upon Social Security and Medicare Taxes. When you file your Federal Return, you must pay all your Employment Taxes to Internal Revenue Service (IRS).

Every state has rules and regulations on Payroll Services for Household Employees on Taxes, including States Income Tax and Unemployment Tax. You should check with your state’s unemployment tax office to confirm whether or not you must pay the unemployment tax for a home employee. The amount of income tax withheld varies from state to state as well.

Federal Unemployment Tax 

If a household pays all of its employees a combined sum of $1,000 or more in any calendar quarter, up to $7,000 a year per employee, Then the household is additionally liable for the federal unemployment tax (FUTA). This tax amounts to an extra 6% on top of your FICA contributions. After paying your employee more than $7,000 in any calendar year, you are free from concern for the remainder of the year.

Benefits of Household Payroll Services

When you hire and pay your household employees legally, including nannies and elder care specialists, then you can avail many benefits. If qualified, there are several methods you might be able to maximize your tax savings, such as:

  • Eligibility for a minimum tax credit of 20% for the first $3,000 in qualifying expenses for each of your first two children each year under the federal Child and Dependent Care Tax Credit.
  • To help pay for your nanny, you can contribute up to $5,000 pre-tax per family each year into a Dependent Care Account.

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How to put my Housekeeper on a Household Payroll?

You have to give the H-2 form to your Housekeeper in which you have to show every year’s wage you paid them by 31st January.

According to the IRS, who falls in the category of Household Employee?

All the employees who work inside or around the house come in the category of Household Employees. Housekeepers, caretakers, nannies, gardeners, and drivers are some of the types of Household Employees.

What are the Household Payroll taxes?

If you are paying some cash wages to Household Employees, you must withhold Social Security and Medicare Taxes Refund from their paychecks. You can also pay from your pocket to Employees as a Share of Social Security and Medicare taxes.

Documentation required for the Payroll Services?

According to the Fair Labour Standards Act (FLSA), all Employers keep records of their Household Employees like – Name, Social Security Numbers, Cash wages, Working hours, Overtime hours, etc.

What is the amount of Minimum Wage for Payroll Services?

$7.25 every hour is the minimum wage for Payroll Services, overstepping 40 in a week, including overtime for pay shifts.

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CPA , The Bookify
I am a Certified CPA with over 20 years in the field of accounting, and I write about how to save time on your taxes and get the most out of your investments.

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