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Hiring household helpers

By Sara Peak from January 2014 Issue

It's nice to get some help around the house, but what is the effect on your taxes when hiring a cleaning person, babysitter, adult day-care helper, gardener, farmhand, or an occasional handyman?

HOUSEHOLD EMPLOYEES The IRS has a special classification called household employees for federal income tax purposes. According to the IRS, "Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee."

INDEPENDENT CONTRACTORS The IRS makes a distinction between employees and independent contractors. Independent contractors, such as repairmen or plumbers, are those you hire to do a task but they also have freedom in how they perform a job for you.

WITHHOLDING TAXES Generally, you are required to withhold from wages—both cash and checks—your household employees' Social Security and Medicare taxes. You are not required to withhold federal income taxes on household employees; however, if you and your employee agree, the employee can fill out a Form W-4 withholding statement. Exceptions include paying your spouse, your parent, your child under 21, or a student.