If you employ people to complete work within your household, then you might need home care payroll services. In this instance, you would be responsible for household employment tax, often called the “nanny tax.”
It sometimes takes several people to properly run a household. Home care workers could include:
- Caregivers
- Cooks
- Nannies
- Drivers
- Housekeepers
- Healthcare providers
- Gardeners
Household employers have tax responsibilities that usually require home care payroll services. Stay updated on guidelines for household employment taxes by using information provided by the IRS. Publication 926, Household Employer’s Tax Guide contains updated revisions and developments that can help guide your home employment tax decisions.
Are Home Care Employees Independent Contractors?
No, home care employees are not classified as independent contractors. As a household employer, you exercise greater control over how and when the workers work is done, and how they are compensated. This control means that home care employees are W-2 employees. Additionally, nannies and other service providers are not always affiliated with a company. This means that you privately hire the worker, and they should be taxed as an employee.
Independent contractors actually have more control over the behavioral and financial aspects of their work, including the type of relationship they have with an employer. These distinctions lead to different tax classifications.
However, please note that plumbers and other service or repair people still function as independent contractors. You do not have control over how these workers complete their work, so their tax classification is different from other home care employees.
Tax Responsibilities for Home Care Employees
Now that we have determined that you must tax home care employees as a W-2 employee, not an independent contractor, let’s take a look at your tax responsibilities. You will need to use home care payroll services for a specific subset of home care employees. If you pay the employee over $2,300 per year (as of 2021), then they are considered a taxable household employee in the eyes of the IRS. The compensation threshold does change from time to time, so make sure to reference Publication 926 to check the status for that tax year. Your responsibilities include employee taxes and payroll.
If you pay and withhold Medicare and social security taxes, then you must provide your household employee with a W-2 form. You will also need a W-3 form. If you withhold federal income taxes from your household employee, you will need a W-2 form, a W-3 form, and a Schedule H (Form 1040).
Use AMS Tax Software To Manage Your Home Care
AMS has the tax capacity to support your household employment needs. The AMS W-2 and 1099 Forms Filer is your one-stop-shop for home care payroll services. The AMS Payroll Software exports data to the W-2/1099 Forms Filer. Our tax software can function as a nanny payroll software, cook payroll software, gardener software, and driver software. The E-Filer Software automatically files W-2 forms with the IRS/SSA.