Question

You are a CPA being paid to prepare a tax return for a client. Your client has a maid that cleans their house twice a week, and is paid about $3,000 per year. You notice your client has not been reporting, withholding, or paying any taxes on the wages of this household employee. When you bring this issue up to your client, they are quick to reply that the maid is a part-time employee and not subject to the “nanny tax”. Is your client right? What would you do in this case?

Answer 1

As per the IRS, any individual whom you employ to provide services in your home whom you pay directly AND whose total payments in the calendar year meets the IRS household employment threshold ,$2100 currently (2018), must receive a W-2 from the employer (family) and the household employer must pay the payroll taxes. According to the U.S. Department of Labor employee and independent contractor advise, “most workers [who are classified as independent contractors] are employees under the FLSA’s broad definitions.”

• Social Security & Medicare Taxes
• State Unemployment Taxes where required
• Federal Unemployment Tax (FUTA) where required

Given the above law, my client is not right.

In this case, i would ask my client to either start deducting the required taxes from the maid's payroll or pay the taxes themselves otherwise this would be considered as evasion of tax.