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Hiring a Household Employee? You May Need a CPA

Hiring a nanny or a housekeeper might seem to be a simple task, but beware! Even the slightest misstep could land you in hot water with the IRS. The safest route is to lease an employee through an agency, but if you prefer to hire on your own terms, you’ll be faced with specific issues.

Although your household employee may be many things to your family, according to the IRS, there are several things he or she isn’t. A household employee is not:

  • A company employee. If your business is so busy that you’ve had to hire someone to help out at home, you must pay that person out of household funds. Putting him or her on the company payroll and then taking the tax deduction is illegal.
  • An independent contractor. If you control what, when or how the work is done you can’t simply pay wages and issue a 1099 at the end of the year. You must treat your worker as an employee, withhold appropriate taxes, and send the government its share. In the eyes of the IRS, treating your household employee as an independent contractor is considered tax evasion.
  • An exempt workerpaid a flat salary. If your hired help works more than 40 hours a week, he or she must be paid at least 1.5 times the standard hourly rate in overtime wages. There are exceptions to this rule though:
    • In most states, live-in employees are not required to be paid overtime.
    • With a written and signed agreement, the employer and his or her employee can settle on a work-week that’s typically more than 40 hours. Address the salary and work hours specifically to protect yourself. For example, if you plan to pay your employee $550 for a 50-hour work-week, your agreement should specify that the salary was determined based on a 40-hour week at $10 per hour and 10 additional hours at $15 per hour. You should also state that any hours over the agreed amount will be paid at the higher overtime rate.

If you haven’t hired your domestic employee yet, we recommend you consult your CPA first. Even if your help is already onboard, a consultation to confirm you’re doing everything right will provide peace of mind.

The worst thing you can possibly do is wait until tax time to let your CPA know about your employee.  By then you may have incurred tax and legal problems or, at the very least, be looking at a more expensive tax return as your CPA sifts through your records to be sure everything has been done correctly.

If you don’t have a CPA we’d be happy to help. Contact us at Office@CPAsite.com or 904-396-5400.

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