Household Workers: Social Security, Medicare, W-2,
If you hire someone to work in your home, such as a cleaning person, a cook, a gardener or a baby sitter, both you and your employee should know about paying Social Security and Medicare taxes.
Your household employee may be eligible for Social Security and Medicare some day—if you deduct Social Security and Medicare taxes from his or her wages, pay the taxes to the Internal Revenue Service (IRS) and report the wages to the Social Security Administration.
When you report those wages and pay the taxes, your employee gets credit toward Social Security benefits and Medicare coverage. This includes retirement (as early as age 62) and disability benefits for the worker and his or her dependents. It also includes survivors benefits for his or her dependents when the worker dies.
If you pay a household worker $1,700 or more in cash wages during 2011, you must deduct Social Security and Medicare taxes and report the wages once a year. This includes reporting any cash you pay to cover the cost of the employee’s transportation, meals or housing. If you do not report the wages on time, you may have to pay a penalty in addition to the overdue taxes.
When you pay a household worker $1,700 or more in cash wages during the year, the wages are covered by Social Security. However, special rules apply in the following situations.
If you run a hotel, rooming house or boarding house, all wages you pay employees must be reported, even if they are less than $1,700 for the year.
You do not have to pay Social Security taxes for household workers (such as baby sitters) who are younger than age 18, unless household employment is the worker’s primary occupation.
If you hire your children who are 21 or older to perform household work for you, you have to pay Social Security tax on their wages. Household work performed by your parent may require taxes be paid in certain situations.
Contact any Social Security office for more information.
Contact IRS about reporting requirements or forms. Employees there will tell you how to complete forms and when and where to file them.
You can also see IRS Publication 926, Household Employer’s Tax Guide, www.irs.gov/publications/p926/index.html for information about what forms you need to file and when. But here are a few things you may want to know.
Keeping records—For Social Security purposes, you need the names, addresses and Social Security numbers of all household workers and the amount of wages you paid them. Copy the Social Security number directly from each person’s Social Security card. If one of your employees does not have a card, he or she should apply for one at any Social Security office.
Deductions for Social Security and Medicare taxes—The 2011 Social Security tax rate for employees is 4.2 percent on wages up to $106,800. The 2011 Social Security tax rate for employers is 6.2 percent on wages up to $106,800. The Medicare tax rate is 1.45 percent of all wages for both employees and employers.
Filing your report—Use your own federal income tax return (IRS form 1040) to report wages of $1,700 or more that you paid a household worker. As the employer, you pay your share of the Social Security and Medicare taxes, along with the taxes you withheld from the employee’s wages, when you file your return.
Submitting a W-2 after the year ends—You also must give your household employee copies B, C and 2 of IRS form W-2 (Wage and Tax Statement) by January 31 after the year the wages were paid. Send copy A to the Social Security Administration by the last day of February. You can get this form and the instructions for completing it by contacting any IRS office or, if you have a personal computer with Internet access and a printer, you can use W-2 Online. W-2 Online is Social Security’s free electronic filing option for employers. With W-2 Online, you can access an electronic Form W-2, complete the form and submit it to Social Security over the Internet. The service even completes a Form W-3 (transmittal) for you. You also can print the copies your employee(s) need to file their taxes
and copies for your records.
To get started, you’ll need to register for a PIN and password which you can do at the Business Services Online website: www.socialsecurity.gov/bso/bsowelcome.htm. For more information, including step-by-step instructions, go to www.socialsecurity.gov/employer/bsohbnew.htm
Household work is credited somewhat differently from other work. Generally, a person earns one credit for each $1,120 of reported earnings (in 2011), up to a maximum of four credits for the year. However, a household worker will earn Social Security credit only for earnings of at least $1,700 from each employer. For example, a household employee who worked for three employers and was paid $900, $1,000 and $1,700 respectively (a total of $3,600) would receive only one Social Security credit with $1,700 posted to his or her Social Security record.
How many credits workers (including household workers) need to qualify for Social Security depends on their age and the kind of benefit they might be eligible
to receive. Most people need about 10 years of work (40 credits) to qualify for benefits. Younger people need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivors benefits when they die.
SA Publication No. 05-10021, January 2011, ICN 45475