If you pay for household help, you may be liable for the “nanny tax,” even if your employee is not a nanny, per se. The nanny tax refers to three federal employment taxes that household employers may have to pay for their domestic workers–Social Security, Medicare, and unemployment taxes. If you hire someone to work in or around your home, you’ll need to know what federal income tax issues (if any) apply, and what forms may be required. Although you may have to withhold and pay federal employment taxes in certain cases, you won’t have to withhold federal income tax from your household employees’ wages (unless you choose to do so).

In addition to federal employment taxes, you may be required to pay state unemployment and disability taxes and/or carry workers’ compensation insurance. Because state tax requirements may differ from federal, you should check with the appropriate agency in your state for further information.

If you have a household employee, you may need to do the following:

• Withhold and/or pay Social Security and Medicare taxes
• Pay federal unemployment tax
• Pay state unemployment tax and comply with other state requirements
• File appropriate federal and state tax reporting forms
• Comply with federal labor laws

You aren’t required to withhold federal income tax from your household employee’s wages. If your employee asks you to withhold it, however, you may choose to do so.

For more information about household employers, see IRS Publication 926 (Household Employer’s Tax Guide).We can help guide you the through the maze of employment taxes and registrations and process your payroll through RedWolf Payroll.

Health Insurance Premiums Paid to 2% Shareholders
The Internal Revenue Service requires health insurance premiums paid by Subchapter S corporations for employees owning more than 2% of the corporation and/or their family members (“2% shareholders”), to be treated as additional wages to the employee. These wages are subject to federal income tax withholding, but exempt from FICA, Medicare and FUTA. Beginning with 2009, if these premiums are not included on the W-2 of the 2% or more shareholders, they may not be deducted.

Group Term Life Insurance
The value of company-provided group term life insurance in excess of $50,000 must be included in the employee’s income and is subject only to FICA and Medicare withholding. The value of includable compensation is calculated according to the following table:

UNIFORM PREMIUMS FOR $1,000 OF
GROUP-TERM LIFE INSURANCE PROTECTION
———————————————————–
5-year Cost per $1,000
Age Bracket for one month
———————————————————–
Under 25 $0.05
25 to 29 .06
30 to 34 .08
35 to 39 .09
40 to 44 .10
45 to 49 .15
50 to 54 .23
55 to 59 .43
60 to 64 .66
65 to 69 1.27
70 and above 2.06

For 2% shareholders, the entire amount of premiums paid must be included as income on the shareholder’s W-2, subject to federal income tax withholding, but exempt from FICA, Medicare and FUTA.

Personal Use of Auto
When providing an employee (including shareholder/employees in corporations) the use of a company-provided vehicle, a value representing the personal portion of usage of the vehicle must be included in the employee’s W-2 income. The value computed must be included in the employee’s W-2 as wages and is taxable for federal income tax, FICA, Medicare and FUTA. Although FICA and Medicare withholding is required, federal withholding is not required if notice was provided to the employee of the Company’s decision not to withhold by January 31st.