If you employ someone to work in your home, such as a housekeeper, babysitter, or home health aid, you may have to pay Social Security and Medicare (FICA) taxes on their wages. No taxes are due if total wages for the year do not exceed a threshold amount per employee ($1,700 in 2011 and 2012). For example, if you pay a babysitter $34 a week for 52 weeks, you won’t owe any FICA for this person (wages total only $1,700; they do not exceed the $1,700 threshold amount).
If you owe Social Security and Medicare (FICA) taxes on wages to your household employee, you report them on Schedule H, Household Employment Taxes, which is filed with your Form 1040. However, you may have to pay the taxes throughout the year as part of your estimated taxes if tax withholding on wages and certain other payments does not cover this liability.
Note: If you engage a household worker through an agency, the worker usually is the employee of the agency and not your employee. If you engage a worker who has his or her own business to do work around your home, such as a gardener or pool cleaner, they are usually independent contractors and not your employees. Discuss the worker’s status when you hire a domestic worker.
The IRS reported that the total number of these self-employed individuals (many of whom are independent contractors) grew by 1.9% over the period from 2002 to 2005. However, growth in certain areas was more dramatic: a 9% increase in the Great Lakes area (Illinois, Michigan, and Wisconsin) and a 16% increase in Georgia.
Source: Summer 2008 Statistics of Income BulletinView all factoids