Household Workers Benefits

You need to be thinking about paying Social Security and Medicare taxes when you employ someone to work in your home, such as a cleaning person, a cook, a gardener, or a baby-sitter.

You need to be thinking about paying Social Security and Medicare taxes when you employ someone to work in your home, such as a cleaning person, a cook, a gardener, or a baby-sitter.

If you are a household worker, seriously consider asking your employer to pay these taxes for you. It may seem great at first to be paid "under the table," and there is a whole underground cash economy going on out there, but he problems come as you age because you are not building any retirement or disability benefits. Consider going into business for yourself. Not only will you be able to build Social Security benefits, you will be eligible to contribute to a self-employed retirement plan or an IRA with earned income.

The rest of this section will be geared toward the employer. If you pay a household worker $1,200 or more in cash wages during the year, you are required to deduct Social Security and Medicare taxes and report the wages on an annual basis. Failing to do this in a timely manner may mean that you'll have to pay a penalty in addition to overdue taxes.

As always, three are special rules to work with. If you run a rooming house or a boarding house, all wages you pay must be reported even if they are less than $1,200. Earnings for household help under age 18 are exempt from Social Security taxes unless the household employment is the worker's primary occupation. If the kids next door work for you all summer baby-sitting and working in your garden, there are no taxes due.

You will be required to keep records of your employees: their names, addresses, Social Security numbers, and the amount of wages paid. You are required to withhold from their wages their share of Social Security and Medicare taxes and are required to match hose withholdings. The Social Security rate is 6.2 percent of wages, ad the Medicare rate is 1.45 percent.

It's easy to file your report because it gets filed with your income tax return (1040), and you pay the taxes with your return. You must also give your household employee the IRS form W-2 by January 31 after the year in which the wages were paid. You'll need to also submit copy A of the W-2 to the Social Security Administration by the end of February.