With more clients havig the need to hire in-home help to assist with children and parents, I thought I would outline some of the rules on Household Employees — Nanny Tax - from the IRS's view.  As always, after reading this article, do not hesitate to call and disucss your particular situation.

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1. Rules may apply to work done in or around the taxpayer's home by baby-sitters, nannies, health aides, private nurses, maids, caretakers, yard workers, and similar domestic workers.

2. Required forms for household employees:
a. I-9, Employment Eligibility Verification;
b. W-4, Employee's Withholding Allowance Certificate (if withholding is requested by the employee and the taxpayer agrees to withhold);
c. W-5, Earned Income Credit Advance Payment Certificate (the taxpayer must give the employee notice about EIC only if he/she agreed to withhold federal income tax);
d. SS-4, Application for Employer Identification Number, for taxpayer/employer to apply for an EIN.

3. File W-2, W-3 if the taxpayer pays:
$1,600 or more in 2008
[$1,500 or more in 2006, 2007]
[$1,400 or more in 2005/2004/2003],
[$1,300 or more in 2002/2001],
[$1,200 or more in 2000],
[$1,100 or more in 1999]
for any calendar quarter in cash wages.  Payment of employment taxes (FICA, Medicare, FUTA) is required if cash wages per calendar quarter exceed $1,000.

4. The taxpayer may pay the employee's share of social security and Medicare taxes, but the employee's share must be included in the employee's wages for income tax purposes. However, they are not counted as social security and Medicare wages or as FUTA wages.

5. Federal income tax withholding is not required unless the household worker requests it and the employer agrees to withhold.

6. Any income tax the taxpayer pays for the household worker without withholding it from the employee's wages must be included in the employee's wages for federal income tax, social security, Medicare, and FUTA.

7. Reporting and payment of payroll taxes is reported on the taxpayer(s) individual income tax return on a calendar year basis on Schedule H, Household Employment Taxes.

8. Required business employment tax returns (in addition to Schedule H):
a. W-3, Transmittal of Income and Tax Statements
b. W-2, Wage and Tax Statement

9. State employment taxes: make sure the taxpayer contacts his/her state unemployment tax agency to determine whether he/she is liable for state employment taxes and/or worker's compensation insurance.