Tuesday Tax Tip for Household Employers

When hiring a domestic worker to work in your home (i.e. nanny, health aide, housekeeper, etc.), you can reduce the taxes for both you and your employee by taking advantage of the IRS-approved non-taxable forms of compensation.  When a household employer pays for any of the following expenses for their employee, the payments are not considered taxable wages so neither the employer nor the employee has to pay any taxes on that portion of the compensation:

• Health Insurance
• College Tuition & Books (up to $5,250 per year)
• Parking (up to $240 per month)
• Public Transportation (up to $125 per month)
• Mobile Phone Service

If any of these expenses apply in your situation, call us and we can make sure you set up payroll correctly to minimize your "nanny tax" liability -- and the tax liability for your nanny.

Effective January 1, 2012, California families that employ a domestic worker (i.e. nanny, housekeeper, health aide, etc.) are required to provide each worker with a written wage notice at the time of hire.  Known as the California Wage Theft Prevention Act, the law mandates that the notice includes 1) the rate of pay, including overtime rates if applicable, 2) pay frequency, 3) employer information, including their formal name, address and phone number and 4) the name, address, and phone number of the employer's workers' compensation insurance carrier.

If you're preparing an employment agreement, we suggest including this information in the agreement.  If not, you can provide these details to your employee(s) in a separate document.