If you have a household employee to whom you will pay $1,800 or more in 2013, you need to be aware of your tax obligations as a household employer. Commonly referred to as “nanny taxes,” these taxes and procedures may seem overwhelming. However, the taxes are required by law and demand your attention. Below is a brief summary of the tax obligations of a household employer.
Please note that a household employer must know his or her obligations for both federal and state taxes. Here, we discuss the state tax requirements for Michigan.
- Employer identification number (“EIN”). First, the employer must obtain an EIN from the Internal Revenue Service (“IRS”).
- Social security and Medicare. The employer and employee are each responsible for his or her own portion of the social security and Medicare taxes. For 2013, the employer’s portion is 7.65% of the wages and the employer must withhold and pay this amount. The employee’s portion is also 7.65%. While the employee is generally responsible for this amount, the parties may agree that the employer will pay the employee’s shares in addition to the employer’s own shares. In such case, the employer would later report the amounts on his or her Form 1040 Schedule H.
- Unemployment taxes. If the wages are $1,000 or more in a quarter, the employer must also pay federal unemployment taxes at the rate of 6%. This tax is capped at $7,000 of wages per year.
- Income tax withholding. The employer may or may not withhold federal income taxes. If not, the employee may need to file quarterly estimated returns.
- Form W-2. In early 2014, you must send your employee and the Social Security Administration specific copies of Form W-2.
Michigan State Taxes
- Unemployment taxes. The employer must register with and file quarterly taxes to the Michigan Unemployment Insurance Agency.
- Income tax withholding. The employer may or may not withhold state income taxes. If the employer does withhold, the employer must register his or her business and submit monthly withholding taxes. The general rate for 2013 is 4.25%. If the parties agree not to withhold, the employee may need to file quarterly estimated filings.
As with most tax matters, there are some exceptions to the above requirements and nuances as to what constitutes income or wages for purposes of each tax category. In addition, there are non-tax laws that apply such as those relating to overtime, eligibility to work (I-9) and reporting new hires with the state.
If you have questions regarding whether your service provider is a household employee and/or your obligations as a household employer, please call Gloria Chon.
For further information regarding these matters, please contact Ms. Chon at 248.740.5689 or click here to send an email.