GTM’S Quick Guide to Payroll & Taxes for Household Employers

Published by GTM www.gtm.com , January 2006

GTM Household Employment Experts™ is the most established household payroll and tax service in the U.S. , serving families who employ household professionals since 1985.

We can:

• Help you eliminate penalties, interest or costs of unnecessary accounting and legal fees
• Show you how to qualify for significant tax breaks and credits
• Keep you up to date on all state and federal regulations
• Provide you with some helpful guidelines in employing a Nanny
• Show you some Benefits of Being Legal

Call 1-888-4-EASYPAY for a free tax consultation.

Step 1 - Determine if you have an employee or independent contractor

Household professionals include nannies, home health aides, private nurses, cooks, gardeners, caretakers, and other similar domestic workers. The main difference between an employee and a contractor is that an employee operates under the control and supervision of his/her employer (you), and a contractor retains all control over himself and his services.

For example, a nurse who has her own company and comes by once a week to provide medical services to an aging parent is a contractor; a nanny who cares for your children in your home is an employee. For more information visit the IRS Publication 926 http://www.irs.gov/pub/irs-pdf/p926.pdf

Step 2- Research Tax Laws

Household Employ er Taxes

The Social Security and Medicare wage threshold is $1,500 for 2006. This means that if you pay a household employee cash wages of less than $1,500 in 2006, you do not have to report and pay Social Security and Medicare taxes on that employee's 2006 wages. For more information visit the IRS Publication 926 www.irs.gov/pub/irs-pdf/p926.pdf

Employers can expect to pay 9-11% of their employee's gross pay, including:

•  Federal and state unemployment insurance (about 2-4% for most states)

•  50% of Social Security and Medicare (7.65%)

•  Other state taxes where required, such as employment training or work force taxes

Use GTM'S tax calculator: https://secure.gtmassociates.com/calculator.asp
Household Employ ee Taxes

Employees can expect to pay 15-20% of their gross wages, including:

•  Federal and state income taxes (not required, but advised)

•  50% of Social Security and Medicare (7.65%)

•  Other state taxes where required, such as Disability Insurance

Use GTM'S tax calculator: https://secure.gtmassociates.com/calculator.asp

Step 3- Follow Payroll Regulations

According to the Federal Labor Standards Act, all household employees must be paid at least minimum wage ($5.15 /hour — higher in some states), however, benefits such as room and board can account for a portion of that wage. There is no limit to the number of hours an employee can work – provided there is mutual agreement. However, overtime may be required in your state. Paid vacations, holidays and sick days are not required by law.