The IRS says it is now more strictly enforcing rules that determine whether a worker is actually your employee or an independent contractor. This has a huge impact on the small business community, but the focus of this blog is on the impact to household employees.

According to the IRS, a household worker is an employee if you control not only what work is done, but also how it is done. If you provide them with supplies and equipment to help around the house, that person looks more like an employee rather than an independent contractor. If the worker is your employee, it doesn’t matter whether the work is full-time or part-time, or that you hired the worker through an agency or online platform.

The nanny tax is a combination of federal and state tax requirements detailed in IRS Publication 926 that families must manage when they hire a household employee. For the tax year 2018, these taxes come into play when a family pays a nanny – or any household employee – $2,100 or more in a calendar year.

For the employer, this includes social security and Medicare taxes as well as federal and state unemployment insurance taxes on the wages paid. In Massachusetts, this is very roughly an additional 8 – 10 percent cost for taxes on top of the compensation paid to the household employee.

In addition, if you have this situation, other considerations start to arise. Employment tax payments must be submitted quarterly. Overtime may be required to be paid and worker’s comp insurance may be required to be purchased if you have an employee instead of an independent contractor.

The bottom line is if you are going to rely heavily on the services of a domestic worker, it is worth thinking carefully about these issues.