What happens when you pay for an “in home person” to provide child care tax wise? MiklosCPA was recently approached by a family who had a person come in regularly to provide “in-home” child care for their son and daughter. They were confused by all the different rules and exemptions and wanted our CPA firm to help untie the knot for them regarding child care taxes.
When you really look at this kind of arrangement, you really are hiring what is known as a “Household Employee”. When you do so, you have the option of either withholding or not withholding the employee’s Social Security, Medicare taxes, and income taxes.
There are, however, a few pointers that you should be careful of:
| When you hire a household employee: | Find out if the person can legally work in the United States. Find out if you need to pay state taxes. |
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| When you pay your household employee: | Withhold social security and Medicare taxes. Withhold federal income tax. Decide how you will make tax payments. Keep records. |
| By January 31st of the following year: | Get an employer identification number (EIN). Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement. |
| By February 28th of the following year (March 31st, if you file Form W2 electronically): | Send Copy A of Form W-2 to the Social Security Administration (SSA). |
| By April 15, of the following year: | File Schedule H (Form 1040), Household Employment Taxes, with your 2016 federal income tax return (Form 1040, 1040NR, 1040-SS, or Form 1041). If you do not have to file a return, file Schedule H by itself. |
Example:
Let’s say you pay a household employee to care for your child and pay cash wages of $100 every Friday when she is at your Azusa home. You expect this employee to make $1800 or more for the year. You decide to pay the social security and Medicare taxes for that employee.
Then every paycheck, you would pay an additional $15.30 for the employee’s taxes. This is broken down into $7.65 for you, and $7.65 for your employee in terms of the total Social Security and Medicare tax due. For income tax purposes you would indicate that your employee’s wages were $107.65, or the regular wages plus the portion of the Social Security and the Medicare tax covered.
You are required to fill out a W-2 as well before the first month of the following tax year, and maintain your records for four years.
Does this sound too confusing? We agree that child care taxes and withholdings are in fact confusing. However, our accounting practice is here for the rescue and can manage your reporting requirements and perform the payroll functions for your household employee.
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