Individuals who hire domestic employees (including those for domestic service on a farm) must withhold and pay Social Security taxes (commonly referred to as “FICA” tax) when the wages paid to such employee exceed the dollar threshold (adjusted for inflation) under the Internal Revenue Code. Employers also must withhold and pay federal unemployment insurance tax (commonly referred to as “FUTA” tax) on wages of $1,000 or more paid to a domestic employee in any calendar quarter.
Domestic employees include workers such as nannies, baby-sitters, housekeepers, gardeners, cooks, valets, caretakers, and chauffeurs. Wages paid to a worker under the age of 18 for domestic service in a private home are exempt from Social Security taxes as long as domestic service is not the employee’s principal occupation. Thus, for example, the wages of a 16 year-old student who also baby-sits is exempt from the reporting and payment requirements, regardless of whether the amount of wages paid is above the threshold. On the other hand, the wages of a 17 year-old single mother who leaves school and goes to work as a domestic worker to support her family is subject to the reporting and payment requirements, and such earnings above the threshold amount also are wages covered by Social Security.
You must report on a calendar-year basis any FICA and/or FUTA tax obligations for wages paid to domestic employees on Schedule H of Form 1040. Any FICA and/or FUTA tax must be paid by April 15 of the year following the year in which the wages were paid, and are included in determining whether the estimated tax penalty may apply. Therefore, to avoid any penalty, you should pay such taxes during the year through withholding from your wages, estimated tax payments, or a combination of both. Further information is available in the IRS Instructions to Schedule H and IRS Publication 926, Household Employer’s Tax Guide.