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6 Tips On Handling Taxes For Household Employees

By ALEX VEIGA

Taxes. They're just about the last thing parents might think about when they hire someone to watch over their child.

Yet a hefty tax bill is a possibility for anyone who pays a nanny, housekeeper, gardener or other household employee enough in annual wages to trigger a bevy of requirements under tax laws.

This year, that financial threshold is $1,800, and it makes the person who hired the household employee responsible for paying that worker's federal and state payroll taxes, just like any other business owner. They also must reflect in their own annual tax return that they had a household employee.

"People think if they pay this person in cash, they don't have to report it, and the recipient doesn't have to pick it up as income," says Cindy Hockenberry, manager of research for the National Association of Tax Professionals. "But there are taxes due on that, and the IRS wants their taxes."

Here are six tips on how to make sure you're not running afoul of the tax man when hiring household help:

1. SORT OUT: INDEPENDENT CONTRACTOR OR HOUSEHOLD EMPLOYEE

Whether you're on the hook for your nanny or maid's payroll taxes begins with determining if he or she meets the IRS' definition of a household employee, rather than an independent contractor.

The IRS defines a household employee as someone hired to do work in or around a home, at the direction and control of the person who lives in the home. Meaning, you tell them what to do and how to do it, and perhaps provide the supplies -- for instance, if you hire someone to mow your yard and they use your lawn equipment.

In the case of a nanny: "Any parent would have an almost impossible case to make that they don't have the right to control the work that's being done in their private home with their child," says Kathleen Webb, president and co-founder of HomeWork Solutions, which provides payroll and tax services to people with household employees.

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