In our last post, we looked back at the year in household compliance (hint: the pandemic played a big role). Now let’s look forward. What should we expect in the new year? Here are 6 things to pay attention to for household employment in 2021.
1. Filing your 2020 taxes
In the next few months, taxpayers will be gathering their documents and completing their tax returns. For household employers, this means providing Form W-2 to their workers, sending Form W-3 to the Social Security Administration (both before February 1*), and filing Schedule H with their personal tax returns.
A couple of things will be a little different this tax season if you provided paid sick or family leave through the Families First Coronavirus Response Act (FFCRA).
First, on your employee’s W-2, you will need to indicate the amount of FFCRA paid leave in box 14.
Then on Schedule H, you will reconcile the paid leave provided as well as employer tax credits.
Some of what you will need to know includes:
- qualified sick and family leave wages paid to an employee
- the employer’s share of Social Security taxes on that qualified paid leave
- the refundable and non-refundable portions of the employer tax credit for paid leave
Read more about how to complete the 2020 Schedule H.
* Typically this date is January 31 but in 2021 that falls on a Sunday so the deadline becomes the following day.
2. Minimum wage rates on the rise … again
This can be a compliance story every year as many states and cities increase their minimum wage rates on an annual basis with some aiming for $15/hour in the near future. Since the federal rate has remained at $7.25/hour for more than a decade, state and local rates are important to track.
Why is this relevant to household employment? Because nannies and other domestic workers are required by the Fair Labor Standards Act to be paid at least the prevailing minimum wage rate (the highest of the federal, state, and local rates). Employees being paid at or near minimum wage can quickly become a wage violation if the family does not pay attention to rate increases. It is an easy way to get sued by a disgruntled employee.
We keep track of minimum wage rates across the country. Many are increasing on January 1, 2021.
3. Paid sick leave laws to go into effect
When Colorado passed a law to establish a paid family and medical leave program, it joined eight other states and Washington, D.C. in creating a paid leave program. While Colorado’s PFML does not take effect until 2023 for contributions and 2024 for taking leave, a few states have sick leave programs starting in 2021.
In New York, workers employed in the state – including household employees – can start taking paid or unpaid sick leave beginning January 1, 2021. Workers began accruing leave on September 30, 2020. Families with between one and four employees must provide up to 40 hours of unpaid leave. If you have five or more workers, then that leave is paid.
New York City amended its’ paid safe and sick leave law to align with the state’s paid sick leave law. As with the state, accrual started on September 30, 2020. Household employers are required to provide domestic workers with 40 hours of paid safe and sick leave.
In Massachusetts, benefits under the state’s Paid Family and Medical Leave (PFML) program become available to employees on January 1, 2021. Household employers were required to remit PFML contributions starting October 1, 2019. Employees are eligible to take up to 26 weeks of paid leave for their own serious health conditions, to bond with a child, to manage family affairs while a family member is on active duty, and to care for a family member who is a covered service member. In July, they will be able to take paid leave to care for a family member with a serious health condition.
In Connecticut, employee payroll deductions begin on January 1, 2021, for the state’s Paid Family and Medical Leave program. Workers can start taking benefits in January 2022. The program provides paid leave for life events including the worker’s own serious health concern; care for a child after birth, adoption, or foster placement; and care to a seriously ill or injured family member; among other reasons. The payroll deduction is 0.5% of wages. A nanny earning $25,000/year would see a $2.64 pre-tax deduction on their weekly paycheck. If they need paid leave and qualify, they will receive $465 a week while they are out of work.
4. A change in the executive branch
It may be too early to tell how a new occupant of the White House will impact household employment and childcare in general. However, while campaigning in July, President-elect Joe Biden announced a 10-year, $775 billion fund to support high-quality, affordable childcare. Biden also said he would offer a tax credit to families for half of their spending on childcare up to $8,000 for one child and $16,000 for two or more children. The full tax credit would be available to families making less than $125,000 a year. All families making between $125,000 and $400,000 would receive a partial credit under his proposal. Read more about Biden’s childcare plans.
It is also worth noting that Vice President-elect Kamala Harris introduced companion bills with U.S. Representative Pramila Jayapal (D-WA-07) in July 2019 that would give household employees basic labor rights. The Domestic Workers Bill of Rights Act was the first-ever, national legislation that would ensure the rights and protections of millions of household employees throughout the country. The bill would address the exclusions of household employees from past labor laws and establish innovative solutions to long-held problems within the domestic employment industry. It will be worth watching to see if the Domestic Workers Bill of Rights gets added attention with Harris now part of the executive branch.
5. Nanny tax threshold increases
The employment coverage threshold for household employees – commonly called the nanny tax threshold – gets a small boost to $2,300 in 2021. If a domestic worker meets or exceeds that threshold, Social Security and Medicare taxes must be paid by the family and the employee. It is easy for temporary or seasonal workers to surpass that mark and trigger nanny tax compliance. Summer and after school nannies, as well as temporary senior caregivers, can easily reach the employment coverage threshold. When filing your 2020 taxes, use the current threshold of $2,200 to determine if you have a nanny tax obligation. The new threshold applies to wages earned in 2021.
6. Contribution limits adjusted for 2021
The IRS released its cost-of-living adjustments, which impact several contribution limits for the 2021 tax year including those for Qualified Small Employer HRAs (QSEHRAs) and Medical Savings Accounts. Contributions to Health FSAs, retirement plans, educational assistance, and transportation benefits remain the same as 2020.
These contributions are made on a pre-tax basis, which can reduce the amount you and your employee owe in taxes.
GTM can help
No matter what the new year brings, GTM Payroll Services will be there for you. As household employment becomes more complex with ever-changing tax, wage, and labor laws, we take the risks, hassles, and worries out of paying your nanny properly and filing your taxes accurately. Have questions about hiring or employing someone to work in your home? We offer a no-obligation, complimentary consultation with a household employment expert. Just call (800) 929-9213 or schedule time with us at your convenience.
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