For example, a nanny is a domestic worker if the employer sets the babysitter's schedule, tells the nanny how to care for the children, and provides the necessary equipment for childcare. Many people are confused by the distinction between employees and independent contractors. This distinction is important because employers of domestic workers file and pay employment taxes. Independent contractors handle their own tax returns.
The IRS determines the classification of workers primarily based on who controls the work being performed. If you have the right to control or define the work to be done and how the work will be performed, and if you control the financial aspects of the relationship, according to the IRS, you are an employer. The vast majority of domestic workers are employees, not independent contractors. Families trying to avoid tax obligations by trying to define their nanny as an independent contractor may want to reconsider it.
The IRS is aggressively pursuing these cases and is known to add penalties to taxes and interest owed, along with civil penalties. Domestic workers, such as nannies, are considered non-exempt workers under the Fair Labor Standards Act. Kathleen Webb co-founded HomeWork Solutions in 1993 to provide payroll and tax services to families employing domestic workers. Prosecution for deliberate misclassification of employees as contractors is a compliance priority for the U.S.
Department of Labor, and the Internal Revenue Service has signed information-sharing agreements with more than 30 states to facilitate compliance. They must have their taxes withheld and receive a Form W-2 at the end of the year, while the family pays their share of the employer's taxes. Employers choose what type of work a domestic worker is responsible for and how that work is expected to be completed. These individuals provide their own tools and offer their services to the public as independent entrepreneurs.
Certain licensed professionals, such as physical therapists, occupational therapists, and speech therapists, who come to your home to provide specialized professional services for you or your dependent, will generally be treated as independent contractors and will have their own insurance and pay their own taxes. An employer may be penalized with having to pay 100% of the associated payroll taxes of any payment made for services if the worker's status is incorrectly determined. A company can pay an independent contractor and an employee for the same or similar work, but there are important legal differences between the two. Your nanny and all domestic workers must receive a Form W-2 every year for tax and wage reporting, and household employers must make payments to the Internal Revenue Service for Social Security and Medicare, as well as the Federal Unemployment Tax (FUTA).
If desired, the family can file Form SS-8 with the IRS to obtain a determination of domestic worker status. If the worker is an employee, it doesn't matter if the work he performs is full-time or part-time or if he was found and hired with the use of an employment agency or through a list provided by a labor agency or organization. If you are an independent contractor and have questions about your status, contact the Visit Department of Labor disclaimer page. The employer must also match that 7.65% out of pocket, also for Social Security and Medicare.
Please note that child or elder care workers provided by the agency to organizations are not considered “domestic workers” and the annual wage threshold exempt from domestic employment described above does not apply. It is very important that you clearly establish, before hiring the agency, that they are the employer. .
