Summertime schedules can fill up fast, so it makes sense that many of us decide to hire some extra help to keep certain details of our lives running smoothly. You might have a summer nanny to take care of the kids. Or maybe you hire a professional to come over and clean the house. (It can be a lot better than running around and doing everything yourself!)
Either way, when you have household workers, you should note that their services may require a little extra tax planning on your part. You’ll want to make sure you’re in the clear.
Tax Laws for Household Workers
For the tax year 2021, the tax code puts the household employee reporting threshold at $2,300. What this means is that if you’ve hired an individual for the summer (or really, at any time), and you end up paying them more than $2,300 for their services during the year, you need to submit a W-2 for them. That might sound a little strange, but it’s still important to review the rules. The differences between a summer helper and someone who is technically receiving wages aren’t always that clear.
-
Nannies, babysitters, and caregivers
-
House cleaners or maids
-
Private nurses and health aides
-
Landscapers and yard workers
-
Personal drivers or other assistants
While some of these roles may sound like standard services for any family or homeowner, it’s important to note that, according to the tax code, some of these individuals are actually working as household employees. If you ignore this, you might accidentally be evading your tax responsibility. And obviously that can lead to some major problems down the road.
How Do You Know What’s Taxable?
There are a handful of questions you can ask yourself to determine whether you have a household employee. First off, does the individual work exclusively for you? If not, then the tax code might recognize them as self-employed. But when it comes to nannies and caregivers, this can get a little tricky. If these workers aren’t coming to you from an agency, you might need to follow the IRS checklist for withholding taxes.
A good rule of thumb is to simply watch your expenses and make sure you won’t exceed the reporting threshold for the tax year. Of course, this won’t always be possible. Certain services naturally cost more, and your summer schedule might require all of the help you can get!
When You Need an Accounting Company, You Can Trust NSO
The tax code can be difficult to navigate—but that’s why our team of tax professionals is here to help. No matter your situation, we’ll be happy to schedule a quick consultation with you to answer your questions and start exploring your best possible next steps. The more you know, the better off you’ll be come tax season.
If your household budget has a big chunk devoted to summer workers or you consistently hire certain individuals all throughout the year, it helps to stay ahead of the curve. Let us help you get a better understanding of your potential liabilities. We can even help you work through the process of setting up your process for issuing W-2s and filing the necessary forms. Feel free to give NSO and Company a call at (317) 588-3131. We’d be happy to hear from you!