How to Take Taxes Out on Household Employee
- 1). Deduct taxes if you pay cash income of $1,700 annually to a household worker who is not your parent, spouse or child under 21 years. Furthermore, do not withhold taxes on wages amounting to $1,700 and paid in 2010, if the employee is under 18 years.
- 2). Withhold FICA (Federal Insurance Contribution Act) taxes, if the employee meets the qualifications in Step 1. FICA consists of Medicare and Social Security wages. The FICA tax amount is 15.3 percent of the worker's income. The employee is responsible for 7.65 percent and the employer is responsible for a matching amount. If you prefer, you can pay the entire sum of 15.3 percent and not deduct it from the employee.
If you pay the employee's share of FICA tax, include the amounts in his wages for income tax reasons. The amounts are not counted as Medicare, Social Security wages or federal unemployment income. - 3). Treat federal income tax as an option. The IRS does not require you to deduct federal income tax from the employee's wages. If the employee wishes to have the withholding, however, you can make the deduction. If so, give her a Form W-4 to complete and use the IRS' Circular E (Publication 15) to make to determine the withholding amount.
- 4). Contact your state workforce agency if the employee wants state tax withheld. State tax is optional, but if the employee wants the deduction, you must get the rates from your local department of labor (DOL) office because state taxes vary.
- 5). Pay federal unemployment tax if you pay total cash income of $1,000 in any quarter of 2009 or 2010 to a household worker who is not your spouse, parent or child under 21 years. Generally, federal unemployment tax is 0.8 percent of cash income, up to the annual limit of $7,000.
- 6). Check with your local DOL to determine if you owe state unemployment taxes.