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"If you hire a gardener that comes a couple
times a month and he's subject to your control as far as hours and
how he works, he's your employee," says Nancy Anderson, tax education
coordinator with H&R
Block in Kansas City, Mo. "One who holds himself out as in business
and takes care of your yard and several others, he's self-employed,
so you don't need to pay his employment taxes."
Similarly, if you hire a maid who sets her own
schedule and uses her own supplies, that's another case of independent
contracting. But if you hire a housekeeper who provides cleaning
services exclusively for you, using materials you provide at a time
and in a manner you determine, says enrolled agent and National
Association of Tax Professionals spokeswoman Cindy Hockenberry,
you are in charge and must pay the taxes.
The amount of control is most easily identifiable
in cases of personalized in-home care, either of children or for
ailing dependents who need nursing help.
And while there may be some leeway in determining
a worker's status, Hockenberry cautions against going overboard
to make an employee look like an independent contractor just to
escape employment taxes.
The employment definition may depend on facts
and circumstance that can be altered to fit the needs of the worker
or employer, but the IRS takes the differentiations very seriously
-- enough to print Publication
15-A, Employers' Supplemental Tax Guide. This 59-page booklet
provides household employers with additional guidance on the various
employer-employee relationships and tax rules.
How to pay employment
taxes
Once you've resigned yourself to paying employment taxes for household
help, how exactly do you get the money to the IRS?
Previously, individuals who hired home workers
had to file quarterly tax paperwork just like a business. But lawmakers
found that such complexity produced a major tax collection headache
for the IRS.
"Because the rules were so complicated, no one
ever paid," notes Hockenberry. "So they tried to make it simple
and developed Schedule H to attach to your regular 1040 when you
normally pay taxes."
But to file Schedule
H you first have to get a second tax ID number. The IRS wants
your employer identification number (EIN) as well as your Social
Security number on the form. You should apply for an EIN as soon
as you hire any household help by filing Form
SS-4.
When you've filled in all the ID numbers, as
well as the particulars of your domestic help's salary, Social Security
and Medicare taxes due and any unemployment taxes you may owe, you
transfer the amount to line 62 in the "other taxes" section of your
individual Form
1040. This section is added to your income tax liability to
get the total amount of tax you owe.
Don't get caught short
And because the employment taxes are filed as part of your routine
individual income tax return, you need to stay on top of the amount
you will owe so you won't be surprised when you figure your final
tax bill in April.
If your return shows a tax of more than $1,000
due, you could owe the IRS penalties and interest for underpayment
of taxes throughout the year.
Both Hockenberry and Anderson recommend household
employers consider filing estimated
tax payments to cover any tax shortfall.
Or, if you have a job, you can file a revised
W-4 and ask your boss to adjust
your income tax withholding to make sure you pay enough taxes
that way.
Freelance writer Kay Bell writes Bankrate's tax
stories from her home in Austin, Texas, and blogs each day on tax
topics at Don't
Mess with Taxes.
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