A New Year’s Tax Checklist for Household Employers
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Everyone wants to start 2014 off on the right foot. Most people do it with a New Year’s resolution, but if you’re a family with a full-time nanny, housekeeper, frequent babysitter or other household employee, you may or may not know that one of your top priorities should be making sure your taxes are in order.
That’s because the IRS requires any family that paid a household employee $1,800 or more last year (the limit increased to $1,900 in 2014) to follow payroll and tax rules similar to many businesses.
While most of the work has already been handled, January is always a busy month for families because three important tax deadlines are coming at the end of the month. Here’s what you need to do:
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Deadline #1: Your fourth estimated tax payment is due to the IRS by January 15.
Families with household employees send estimated tax payments to the IRS four times per year to cover their employer tax liability. Use IRS Form 1040-ES to send the Social Security, Medicare and federal income taxes withheld from your employee during the months of September, October, November and December, as well as the Social Security, Medicare and federal unemployment insurance taxes you owe as a household employer.
TAX NOTE: You’re technically allowed to include the fourth 1040-ES payment with your personal income tax return, but it’s a risky move. You could be assessed an underpayment penalty due to the IRS’ safe harbor rules. Talk to a tax professional familiar with your situation if you’re considering this option.
Deadline #2: File your state tax returns (generally) by Jan. 31.
State unemployment tax returns are required of all household employers and you’ll probably have to file state income taxes returns too (if the state you live in has income taxes). But because many states have different filing rules, the frequency in which you have to file your state taxes and the deadline may not be the same for everyone.
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Generally speaking, state unemployment insurance and state income tax returns are filed on a quarterly basis and are due by the last day of the month following the end of the quarter. This means most families have a January 31, 2014 deadline to file their 2013 fourth quarter state tax returns. If you need to know the requirements in your state, click here.
TAX NOTE: Some states with state income taxes also require families to file an annual reconciliation form (due sometime between January 31st and February 28th, depending on your state). The form is a summary of the state income taxes withheld from the family’s employee each quarter of 2013.
Deadline #3: Mail or give your employee a W-2 by Jan. 31.
A nanny, housekeeper, babysitter, etc. must have a W-2 in order to file her personal income taxes. You can to mail your caregiver a W-2 or give it to her in person, but she must have it by January 31. The W-2 lists the wages she earned and the taxes she had withheld from her pay throughout the year.
TAX NOTE: The IRS requires families to keep Copy D of the W-2 for four years for audit purposes.
On the surface, these three deadlines look like they involve a significant amount of extra work. But it’s not as hard as it seems — and it gets you closer to completing your household employer responsibilities for 2013.
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Aside from your January deadlines, don’t forget you also have to file Form W-2 Copy A and Form W-3 with the Social Security Administration and prepare and attach a Schedule H to your personal income tax return before your checklist is truly complete.
Once you’ve checked these steps off your to-do list, you can reward yourself with filing for tax breaks and recoup some of your employer costs — and those savings are worth the work!
Stephanie Breedlove is the VP of Care.com HomePay, where she helps families to simplify and understand their responsibilities as employers of caregivers or household workers. She is one of the country’s leading experts on household employment tax and labor law. When she isn’t busy keeping up with her two grown boys, Stephanie enjoys spending time outdoors in and around the Austin area hiking, biking and fishing.
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