Critter Corner: What Taxes Do We Need to Pay for an Independent Caregiver?

Dear Oakley,

We are hiring an independent caregiver, meaning she is not from an agency. My understanding is that we are responsible for paying taxes for her, since she is considered to be a household employee. What taxes are we responsible for paying? Thanks for your help!

Payton Ataxis

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Dear Payton,

As an employer of an independent caregiver (or household employee), you need to pay taxes. It doesn’t matter whether the work is full-time or part-time or that you hired the worker through an agency or on your own. It also doesn’t matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.

Paying a Household Employee

Once an independent caregiver has been hired, you need to first figure out the pay period, which is the starting and ending dates for which an employee is paid. For every payday, the amount in which an employee is paid needs to be disclosed to federal and state agencies, such as the Social Security Administration and the Internal Revenue Service. From each paycheck, employee taxes are withheld. It’s important to note, both employers and employees are required to pay taxes on the wages earned by an employee.

Taxes that Need to be Paid

Payroll for a household employee includes calculating hours and pay, reporting payments to federal and state agencies, withholding and paying Social Security, Medicare, federal and state income tax, and Federal Unemployment Tax.  The following are more details about the taxes that are paid by employers and/or employees:

  • Social Security Tax – This is both an employer and employee/caregiver tax. As of 2021, the employer pays 6.2% and the employee pays 6.2% (12.4% total) up to $142,800 in employee wages. Please note, if an independent caregiver does not make $2,300 / year, neither the employer nor the employee are required to pay Social Security tax.
  • Medicare Tax – This is both an employer and employee / caregiver tax. As of 2021, an employer pays 1.45% and an employee pays 1.45%. (2.9% total) on all employee earnings. If an employee earns more than $200,000 / year, the employee must pay an additional 0.9% for earnings over this amount. Again, the employer is not required to match this higher tax. Again, if the independent caregiver does not make $2,300 / year, neither the employer nor the employee are required to pay Medicare tax. The combination of Social Security and Medicare taxes is sometimes referred to as FICA taxes.
  • Federal Income Tax – A caregiver/employee only tax. Household employees, such as private caregivers, are not required to have federal income tax withheld from their paychecks. However, if an employee requests that federal income tax be withheld, an employer must do so. It’s important to note, just because federal income tax does not have to be withheld, a household employee is still required to pay federal income tax.
  • Federal Unemployment Tax (FUTA) – As of 2021, the FUTA tax rate is 6% of the first $7,000 paid to each employee annually. While FUTA payroll tax is based on employees’ wages, it is imposed on employers only, not their employees.
  • State Unemployment Tax – This is a state tax that is employer paid. The amount varies by state, and not all states require employers to pay state unemployment tax. To determine if one’s state requires an employer to pay this type of tax, one needs to contact their state unemployment tax agency.
  • State Income Tax – Not all states require that state income tax be paid, but if they do, this is an employee tax, and the amount owed will vary by state.

For state specific information, please click here. For additional details on taxes for household employers, see IRS Publication 926 (2021), Household Employer’s Tax Guide.

To summarize, an employer must withhold from each employee’s paycheck 6.2% for Social Security Tax, 1.45% for Medicare Tax, Federal Income Tax (if applicable), and State Income Tax (if applicable). An employer also owes an equal share of Social Security and Medicare Tax for every paycheck. In addition, an employer needs to pay Federal Unemployment Tax and potentially State Unemployment Tax.

Hope this is helpful,

Oakley

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