Question: I have a home health aide I pay to provide extra help to my dad on a regular basis—things like driving to appointments and social engagements, as well as some household duties. What do I need to provide to them for their tax filing purposes?
Answer: If you hired the aide through a home health agency and pay the agency, the agency should handle tax withholding and reporting for that person. However, if you hired the aide directly, you likely will need to treat that person as a household employee.
The IRS defines household employees as those who work in and around your private residence and whose work you can control (as in, when and how they work). When you hire a household employee, the first thing you’re supposed to do is ask the employee to fill out a U.S. Citizenship and Immigration Services Form I-9 to verify he or she is legally eligible to work in the U.S. You must complete the employer section of the form by checking the employee’s ID and employment eligibility documents. Keep the completed form in your records. (You don’t have to file it with the IRS.)
Determine whether you need to withhold taxes
If you paid the household employee more than $2,300 in cash wages in 2021, you were supposed to withhold and pay Social Security and Medicare taxes. You must withhold the employee’s share of Social Security and Medicare taxes – a total of 7.65% – from all wages you paid. You also must pay the employer’s share of Social Security and Medicare taxes, which is 7.65% of wages. The IRS has a Social Security and Medicare withholding table you can use.
If you paid the employee more than $1,000 in wages in any three-month period, you must pay the federal unemployment tax (FUTA) tax. Also, contact your state unemployment tax agency to see if you need to pay state unemployment tax for your household employee.
You’re not required to withhold federal income tax from a household employee’s wages. However, the employee can ask you to do so. If you agree, the employee will need to fill out a Form W-4. All taxes you withhold must be paid to the IRS (more on that below).
What forms to file
You’ll need to apply with the IRS for an employer identification number (EIN), the nine-digit number you must include on tax forms you file for the employee. You can apply for an EIN at https://www.irs.gov/ein.
You’ll also need to file a Form W-2 if you paid the employee more than $2,300 in 2021 ($2,400 in 2022) or withheld federal income tax. Copy A of the form along with a Form W-3 must be sent to the Social Security Administration. Give Copies B, C and 2 to your employee (copies for the 2021 tax year were supposed to be sent by Jan. 31, 2022).
File Schedule H with Form 1040 to report the total cash wages you paid to the household employee, and calculate the total Social Security, Medicare, FUTA and any withheld income taxes owed. You’ll add these household employment taxes to your income tax and have to pay what’s owed by April 15, 2022. Going forward, you can avoid paying taxes when you file your return by paying estimated taxes throughout the year or by increasing withholding from your own wages.
For more details on household employees and taxes, see IRS Publication 926. Also, it would be a good idea to hire an accountant or enrolled agent to ensure you’re filling out and filing all of the necessary forms.
