How Household or Domestic Employee Payrolls Work

Fulfilling the proper payroll tax filing and depositing requirements for household or domestic employees can be confusing, but here's how the process usually works...

Household, or domestic, employees are prevalent enough that the IRS issues a how-to guide with compliance requirements called Publication 926.

Its important to note that household employees are not reserved for high net worth individuals; Caretakers for the elderly and Nanny's for children of working parents are just two of the more common classifications for household employees.

For all employers with employees, payroll taxes are due at the Federal (IRS) and State level (and sometimes at the county, city, and local level).

For Federal taxes, most household employers are not required to file a quarterly form 941 as do most other employers with employees. Instead, household employers report their Federal Payroll Tax liability on a form Schedule H with their 1040 tax filing completed at the end of the year. Federal Tax deposits can be made with the Estimated Tax deposit schedule throughout the year (Estimated tax payments for 2013 are due April 15, June 17, and September 16, 2013, and January 15, 2014 - note this is a different deposit schedule than Employers who file form 941).

State Tax Filings and Deposit schedules and requirements may vary per state. Here in Washington, we file and deposit Employment Securities (WA State Unemployment Tax) on a quarterly basis for domestic employees earning more than $1,000 in a calendar quarter. Some states, for example, Texas, may allow filings and deposits to be performed annually, so check with your state departments of Revenue and Unemployment.

As challenging as some of this may seem. It is important to note that the individual employee will still need their proper payroll taxes deducted and paid for them as they would have under any other employer. They will also still require a W2 from you at the end of the year.

If this becomes overwhelming, there are payroll services companies that can help. Just be sure to work with someone at the company with a history of setting up these kinds of payrolls, as a lack of experience may cause some added challenges.

Feel free to contact me at Randy.Harris@adp.com if you would like more information on our payroll services options in this area.