The IRS is more strictly enforcing rules that determine whether a worker is actually your employee, rather than an independent contractor.
So be careful if you regularly pay a gardener, housekeeper, nanny, babysitter or any other household service provider. You don't want to run afoul of the IRS's household employee rules, often referred to as the Nanny Tax.
Do you have a household employee?
Many taxpayers unwittingly establish an employer relationship when they hire someone to help around the house. To decide whether a household worker is your employee, the IRS looks at whether you:
The IRS also considers whether the relationship is permanent, and whether a worker is economically dependent on their employment with you. A worker may be considered an employee whether or not their work for you is part- or full-time, or paid hourly, weekly or by the job.
Tip 1: The more independent the worker is, the less likely they are to be considered your employee. Have your worker set their own hours and use their own tools. Also have them invoice you for their work and provide you with receipts.
Tip 2: If the worker works for another company that issues them a W-2, or they run their own company that offers services to the general public, you are generally safe from having them considered as your employee.
If you think you have a household employee, here is what you need to know:
If you are going to rely heavily on the services of a domestic worker, it’s worth thinking carefully about the relationship at the outset. Consider getting a formal employment contract in place, and call for help to create a plan to handle your tax obligations.
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Mia Verc, CPA; Janice Papais, CPA
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