As someone who employs a nanny, housekeeper, private teacher, senior caregiver, or any number of other domestic workers, you know how difficult it can be to keep track of all the laws, rules, and regulations surrounding household employment. Use this as a guide for everything you need to know about household employment in 2021.
Nanny Tax Threshold
The nanny tax threshold for 2021 is $2,300. If you pay a household employee at least that amount, then Social Security and Medicare taxes must be withheld and remitted to the IRS.
Do not count wages paid to your spouse, child under the age of 21, parent, or any employee under the age of 18 at any time in 2021.
If you pay a household employee $1,000 in any calendar quarter of 2021, you will owe federal unemployment taxes. Do not count wages paid to your spouse, a child under the age of 21, or parent.
Household employers may also owe state unemployment taxes, which vary by state.
Nanny Tax Responsibility
Social Security and Medicare (FICA): 7.65% of your employee’s cash wages (6.2% for Social Security; 1.45% for Medicare)
Federal Unemployment (FUTA): 6% on the first $7,000 of your employee’s cash wages
State Unemployment (SUI): varies by state. You may be able to reduce your FUTA rate to 0.6% based on your SUI contributions.
Use our nanny tax calculator to help determine what you owe.
FICA: 7.65% of cash wages (6.2% for Social Security; 1.45% for Medicare)
Federal income tax: Based on the employee’s Form W-4.
State and income taxes: If applicable.
Withholding income tax from your employee’s pay is optional – but recommended.
Disability insurance: 5 states (California, Hawaii, New Jersey, New York, and Rhode Island) require an additional withholding for disability insurance – state-mandated programs that provide short-term benefits if an employee is unable to work due to a non-work-related injury.
A household employer can remit FICA, FUTA, and federal income taxes quarterly using Form 1040-ES. States typically require quarterly reporting.
Household employees are to be paid at least the highest of the prevailing federal, state, or local minimum wage rate.
The federal minimum wage is $7.25/hour.
39 states and Washington, D.C. have higher rates than the federal minimum wage.
Nannies and other household employees are covered by the Fair Labor Standards Act and required to be paid at least time-and-a-half for hours worked over 40 in a workweek.
In California, however, overtime pay kicks in after eight hours in a day; 40 hours in a week; and the first 8 hours on the 7th consecutive day of work in a workweek.
Live-in employees are typically exempt from overtime rate of pay requirements.
Some states have their own overtime laws for live-in employees and they would apply.
New York and Oregon: overtime pay for live-in employees starts at 44 hours in the workweek.
Minnesota: overtime pay begins at 48 hours in the workweek for live-in employees.
Hawaii and Maryland: live-in employees need to be paid overtime for all hours over 40 in a workweek so essentially, they are not excluded from overtime laws.
Up to eight hours of sleep time can be unpaid if your live-in employee can get at least five hours of uninterrupted sleep.
California: does not allow sleep time to be unpaid.
Workers’ Compensation Insurance
23 states and Washington, D.C. require household employers to carry workers’ compensation insurance (often based on pay or hours worked). Workers’ compensation can help pay an employee’s medical bills and cover lost wages if they get injured or sick on the job.
Domestic Worker Protections
Nine states and two cities have domestic worker protection laws or a Domestic Workers’ Bill of Rights.
Paid Sick and Family Leave Programs
Nine states and Washington, D.C. have created paid leave programs that often include household employees. Check state labor laws.
COVID-19 Paid Leave
In 2021, paid leave for pandemic-related reasons is available but can be offered voluntarily by household employers. If allowed, workers can take any unused paid leave provided to them through the Families First Coronavirus Response Act through March 31. Employers can still take a dollar-for-dollar tax credit on qualified, pandemic-related paid leave.
States and cities may have their own paid sick leave requirements related to the pandemic.
A household employer can make tax-free contributions of up to $5,300 for an individual and $10,700 for family towards an employee’s QSEHRA.
Federal Mileage Reimbursement
You can reimburse your employee for mileage up to 56 cents/mile.
Transportation and Parking Benefits
You can provide up to $270/month tax-free to your employee to help offset the costs of commuting to work. The same amount ($270/month) is also available tax-free for parking expenses.
You can contribute up to $5,250 tax-free towards an employee’s qualified educational expenses such as tuition and textbooks. A special provision that was part of CARES Act and the latest stimulus package includes student-loan repayment assistance as a qualified educational expense.
Dependent Care FSA
With a dependent care FSA, you can set aside pre-tax dollars (up to $5,000) to help pay for childcare. The wages paid to a nanny can be covered by a dependent care FSA.
Child and Dependent Care Tax Credit
You can claim up to $3,000 of qualifying child care expenses – like the wages paid to a nanny – for one child and up to $6,000 for two or more children using the Child and Dependent Care Tax Credit when you file your tax return. You may receive a 20% tax credit on those expenses, which can save you up to $600 for one child or $1,200 for two or more children.
February 1: Provide your employee with Form W-2 and file Form W-3 and Copy A of Form W-2 with the Social Security Administration
April 15: File Schedule H and Form 2441 for the Child and Dependent Care Tax Credit with your federal tax return
April 15: Q1 (Jan-Mar) estimated federal taxes due
April 30: Q1 (Jan-Mar) state taxes due*
June 15: Q2 (Apr-May) estimated federal taxes due
July 31: Q2 (Apr-Jun) state taxes due*
September 15: Q3 (Jun-Aug) estimated federal taxes due
October 31: Q3 (Jun-Sep) state taxes due*
January 15, 2022: Q4 (Sep-Dec) estimated federal taxes due
January 31, 2022: Q4 (Oct-Dec) state taxes due*
* Most states require a quarterly filing of taxes to be submitted every three months, typically one month after the quarter ends. Check with your state tax agency on how and when to remit your state taxes.
Free Consultation for Household Employers
To get a handle on your responsibilities as a household employer, understand how to pay your employee the right way, and ask questions specific to your situation, talk with one of our household employment experts. It’s a complimentary, no-obligation consultation. Just call (800) 929-9213 or schedule time with us at your convenience.
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