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Welcome to the Payroll Taxes for

Household EmployeesSeminar

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Subject of Household Employees has made national headlines.

Violations have caused the withdrawal of the nominations of:

• Zoe Baird as U.S. Attorney General in 1993

• Linda Chavez as Secretary of Labor, and

• Bernard Kerik as U.S. Secretary of Homeland Security in 2004.

Congress simplifies reporting of wages.

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Today’s Objectives Are to:

1. Identify who is a household employee.

2. Discuss the difference between an employee and an independent contractor.

3. Identify payroll taxes, tax forms and documents related to household employees.

4. Review good recordkeeping practices.

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Who is a Household Employee?

As a general rule:

Those who work in and around your private residence are your employees.

Examples:

housekeepers

nannies

gardeners

private nurses

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Employee or Independent Contractor?

Typically, an employer has the right to control how an employee performs a service for the employer.

Independent contractors determine for themselves how the work is to be performed.

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Employee or Independent

Contractor? - cont.

IRS guidelines

Three categories of evidence:

1. behavioral control

2. financial control

3. relationship of parties

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Behavioral Control

To determine whether an employer has retained the right to control the

details of a household worker’s performance, or has given up the right

to control those details.

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Financial Control

The ability to realize profit or loss is the strongest evidence that a

worker controls the business aspects of services rendered.

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Relationship of the Parties

This relationship reflects the parties’ intent concerning control.

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Employee Benefits

Termination of a Worker

Relationship of the Parties - cont.

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Length of the Relationship

Regular Business Activity

Relationship of the Parties - cont.

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Risks in MisclassifyingAn Employee

Intentional

Unintentional

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Play it Safe

When an employer is in doubt about how to classify an employee, it may be wisest to classify him or her as an employee.

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Getting Help from the IRS

Form SS-8

“Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding”

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Who Is a Household Employee?

Example #1

Betty Shore is hired to baby-sit and do light housework four days a week for $350. Betty follows specific instructions about household and child care duties. Household equipment and supplies are provided to Betty.

Is Betty a household employee?

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Who is a Household Employee?

Example #2

John Peters runs a lawn care business and offers his services to the general public. John provides his own tools and lawn maintenance equipment. John hires and pays any helpers he needs to do the job.

Is John a household employee?

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Overview of IRS Regulations on

Household Employees A household employee cannot be your spouse,

parent or child under age 21.

A household employee must be 18 for the entire calendar year to be considered an employee for FICA purposes, unless the principal occupation is domestic service.

If cash wages of $1,600 or more are paid to any one household employee, the employer is required to withhold FICA.

If cash wages of $1,000 or more in any calendar quarter are paid to household employees, the employer must pay FUTA.

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Overview of IRS Regulations on

Household Employees

Employers are not required to withhold FIT, unless requested by the employee and agreed upon by the employer.

Form W-4 must be completed.

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Employer’s Responsibilities

Federal and state identification number (EIN).

Note: EIN is not the same as a social

security number.

Form I-9.

Form W-4.

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Employer’s Responsibilities - cont.

Form W-2 Wage and Tax Statements for each household employee

Form W-3 Transmittal of Wages and Tax Statements

Schedule H Household Employment Taxes (with Form 1040)

Workers’ Compensation

Employers are also responsible for FICA and FUTA

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Paying Estimated Household Employee

Taxes

Avoiding an estimated tax penalty

Form 1040-ES, Estimated Taxes for Individuals

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Keeping Wage and Tax Records

Each payday, record the date and amounts of:

the employee’s cash and noncash wages

Social Security tax withheld or tax the employer agrees to pay for the employee

federal income tax withheld and

federal and state employment taxes withheld.

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Keeping Wage and Tax Records:

Employee’s Social Security Number

Keep a record of the employee’s name and social security number if an employer pays the household employee either:

Social Security and Medicare wages of $1,600 or more for 2008, or

wages from which they withhold federal income tax.

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New Hire Reporting

new hire reporting regulations

save employers paperwork and valuable time

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Workers’ Compensation

Helping small businesses to manage workers’ compensation costs

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Summary

Payroll Taxes forHousehold Employees

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Paychex Services

Workers’ Compensation Report Service

New Hire Reporting

Form W-2

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AICPA Partnership Program

Upon enrolling for free, CPAs may offer clients one month of free standard Paychex payroll service, or a $400 credit toward Major Market Services payroll.

CPAs may offer clients a $200 reduction on the setup fee for Paychex Retirement Plan Administration.

These offers come with a risk-free, six-month, money-back satisfaction guarantee.

Preferred Payroll Provider for

AICPA business solutions

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Thank you!