Question: The person I just hired to provide in-home care was referred by an agency. Since I’ll pay her directly, will I need to make payroll deductions?
Answer: California law says the person hiring the household worker becomes the employer if the employment agency’s only involvement is employee placement. So people who hire caretakers, domestic workers, drivers, health aides, housekeepers or private nurses must make payroll deductions and pay required taxes.
Here are the major financial responsibilities:
Federal Income Tax (FIT):
FIT may be withheld at the request of the household worker. In all cases, a Schedule H form must be submitted and filed with the employer’s personal tax return.
Social Security and Medicare (FICA):
A person who pays a household worker yearly wages of $1,700 or more must provide the Internal Revenue Service (IRS) with direct Federal Insurance Contributions Act (FICA) payments. Such payments, which include required contributions to Social Security and Medicare, are calculated as 15.3 percent of the employee’s current wages. Half is paid directly by the employer and half is withheld from the employee’s wages.
California’s Personal Income Tax (PIT):
California employers are not legally required to withhold PIT from their household workers’ wages.
Registration with the California Employment Development Department (EDD):
Employers who pays wages of $750 to one or more employees in a calendar quarter (January-March; April-June; July-September; October-December), must register with EDD. Anyone who pays wages of $1,000 or more during a calendar quarter must submit Unemployment Insurance (UI) and Employment Training Tax (ETT) payments directly to EDD.
A person who pays quarterly wages of $750 or more must withhold State Disability Insurance (SDI) from the household worker’s wages and forward it to EDD. For employers who hire more than one household worker, the $750 guideline will reflect the sum of all wages paid. For example, during a yearly quarter, someone who hires several people to provide in-home care must combine their total incomes to determine if SDI deductions must be withheld.
Workers Compensation Insurance:
California law requires all employers to obtain workers’ compensation coverage, even if only part-time workers are hired. Failing to have such coverage may result in governmental penalties and personal injury liability. Some renters or homeowners insurance policies provide workers compensation coverage for household employees.
Employers have strict legal responsibilities. For that reason, many people rely on reputable home-care agencies to provide licensed and bonded household workers, manage their payrolls and wages, and supervise and monitor actual work. Other people choose to accept employer responsibilities by either doing it themselves or obtaining the assistance of payroll preparers and other financial advisors.
For more information on the legal responsibilities that arise when hiring a household worker, contact the Taxpayer Assistance Center at 888-745-3886, and review EDD’s Household Employer’s Guide by clicking here.
To find a licensed and bonded home-care agency near you, visit the California Association for Health Services at Home at cahsah.org, or call 866-422-4724.