Don't Run Afoul of the Law When You Hire Domestic Help
By Teresa Ambord
Now that you're retired or nearing retirement, you may be thinking of hiring some help. After all, mowing the lawn may no longer be your idea of fun. Or, perhaps you or your spouse needs at-home nursing help. Hiring regular help isn't as easy as it used to be. These days, the laws concerning domestic help can be confusing for all concerned. Whatever you do. don't ignore the laws.
The last decade has seen many worthy candidates for public office who had to step aside because of revelations that they had not properly handled the payment of their domestic help. Maybe you don't ever plan to run for office, but if you don't follow the employment rules, you could still land in hot water.
If the person you hire is your employee, you are expected to pay payroll tax on his wages and withhold his share of certain taxes.
Your share of taxes will be:
- Social Security: 6.2 %
- Medicare: 1.45 %
- Federal Unemployment: .08 %
In addition, you'll owe state taxes in force in your state. That's not all. There are quarterly and year-end reports to fill out, and you must give the employee a W-2 each year.
Here's the key: is this person your employee? Or is he a self-employed independent contractor? A contractor will pay and report his own taxes. This cannot be decided lightly. "Employee" has a legal definition, and if it applies, you must abide by the rules mentioned above.
Here are a few guidelines to help determine if the worker is or is not your employee:
- The main question you need to consider is, who is in control? If you tell the worker what to do, when to do it, and how to do it, he is probably an employee.
- It doesn't matter if he is full or part-time. He may still be your employee if you exercise significant control.
- A live-in worker, such as a nanny or housekeeper, qualifies as your employee.
- If you hire the person through an agency, he may still be your employee if you pay him directly. If you pay the agency and the agency pays the worker, the worker is not your employee.
- If the worker advertises, such as handing out business cards, or placing ads in the paper, he is likely to be a contractor.
If you believe the worker qualifies as an independent contractor, put it in a simple written agreement, both of you sign it, and then keep it indefinitely along with one of his business cards, advertisements, or brochures if available.
One caveat: Suppose you have a housekeeper that you consider a friend, so you decide to bypass the laws and pay her under the table. An arrangement like this could continue for years, even decades. It may never become an issue. But what generally happens is, when the job ends, she applies for Social Security, or unemployment benefits. She may do so innocently, fully believing that, because she worked, she is entitled to these benefits. But, the moment she names you as her former "employer," the investigation begins. And you could find yourself owing years of back taxes and penalties. plus, you'll never get to be Attorney General of the United States!
If you're feeling discouraged, take heart.
You will not have to meet these bothersome requirements if:
- you hire only occasional workers.
- the workers you hire are 18 or younger.
- the total you paid is less than $1,400 (for 2005, subject to change.)
All these rules may sound intimidating, but they don't have to be. The last thing you want when you hire domestic help is to end up in a big ball of red tape. If you need assistance with these issues many small accounting firms or independent bookkeepers will handle the paperwork for you for a surprisingly small fee. Or, if you belong to a senior center, there may be someone there who can advise you and connect you with the help you need.
You can click on this link (then move down the page to SS-8) IRS form SS-8 to see the criteria for determining whether or not your household help qualifies as an employee.
Get more information by clicking here: IRS Tax Topic