Many doctor families employee nannies and housekeepers, but you're taking a huge risk if you're not reporting correctly.
Employing a nanny, housekeeper, or gardener to work for you presents you with a unique problem. You are not a business employer and thus cannot deduct the wages, but your employee is earning taxable wages from you. Therefore, you may be required to report these payments to the government and to your employee.
Doing this correctly rather than paying “under the table” is essential. The reasons are:
Do you really want your financial security held hostage by your cleaning woman? I didn’t think so.
Workers that the Nanny Tax applies to are:
You are required to report your household employee wages IF YOU:
In the first instance, you are required to pay FICA taxes at 15.3% on the employee’s wages. In the second situation, you are required to pay FUTA (Federal Unemployment Taxes) of 6% of the first $7,000 paid to your employee. You will need to check with the state where the employee does work for you to determine if you are required to pay SUTA and/or workmen’s comp.
For federal purposes, you will report and submit FICA and income taxes annually on Schedule H with your form 1040. Quarterly filing with the IRS is not required. Reporting requirements vary by state and locality, so you'll need to check requirements for worker's compensation, unemployment, and state/local income taxes where you live.