Household Employee: Definition, Examples, and Taxes

Definition

A household employee is an individual hired and paid by a homeowner to perform services within the home, with their work being directed by the employer rather than being self-determined.

What Is a Household Employee?

A household employee, also known as a household worker, is an individual who is paid to provide a service at or within the place of residence of their employer.

Employers choose the kind of work a household employee is responsible for and the manner in which that work is expected to be completed.

If the hired individual rather than the employer were responsible for determining and completing work, the person would be considered by the Internal Revenue Service (IRS) to be an independent contractor and not an employee.

Key Takeaways

Household employees provide services at or within an employer's household.
The IRS considers someone a household employee if their work is decided on and directed by an employer.
An individual is an independent contractor if they are responsible for determining the work and how it should be completed.
Nannies, babysitters, housekeepers, and gardeners are all considered to be household employees.
As of 2020, all new household employees must fill out the revised W-4 form while those hired before 2020 do not need to fill out a new form.

Understanding Household Employees

A household employee can work full-time or part-time. They can be found and hired through an employment agency or via a list provided by an agency or labor organization. Household employees may be paid on an hourly, daily, weekly, or per-job basis.

As mentioned, the IRS distinguishes between household employees and independent contractors based on whether the employer or the taxpayer determines not only the work that is to be performed but how it is carried out.

If the worker controls what they do and how they do it, they are considered to be an independent contractor, not a household worker. Such individuals provide their own tools and offer their services to the public as independent businesspeople.

Where someone works may determine whether they are a household employee or an independent contractor. For example, a childcare worker who performs their duties in an employer's home may be a household employee. But a worker who performs the exact same services in a daycare center would be employed by that daycare center.

Important

The IRS doesn't require an employer to withhold federal income tax from a household employee's wages (this is different from FICA taxes), but if the employee asks to have it withheld, the employer may do so if they choose to.

Examples of Household Employees

Some common examples of household employees can include the following: babysitters, caretakers, cleaning people, domestic workers, drivers, health aides, housekeepers, maids, nannies, private nurses, and sometimes, gardeners or yard workers.

Examples of independent contractors are repairmen, carpenters, and plumbers. Yard workers could be independent contractors rather than household employees, or be employed by a yard service company.

Special Considerations

Taxes

As of 2024, individuals who hire a household employee to whom they pay more than $2,700 in cash wages during the tax year must withhold and send to the IRS the appropriate amount for the employee's Social Security and Medicare taxes (the FICA payroll tax). Employers may be required to pay taxes at the state level as well.

The withholding rate for the employee's portion of Social Security tax is 6.2% and that for Medicare is 1.45%, for a total rate of 7.65%.

In addition, and as for any other employer, the employer of a household worker must pay their 7.65% portion of the FICA tax out of their own pocket. The total tax rate is 15.3%

While the tax implications of hiring a household employee may appear complex, there are many payroll services that can help automate some or all of the process.

As of 2020, new household employees must use the redesigned W-4 tax form upon hire. Those hired before 2020 do not need to fill out a new form.

Fast Fact

The taxes on the wages of household employees are commonly known as the nanny tax.

What If a Household Employee Asks To Be Paid Under the Table?

Household employers should understand that it is illegal to pay a household worker and not withhold taxes. To do so would mean to risk trouble with the IRS for both the worker and the employer.

Is the Person Who Mows My Lawn an Employee?

If they bring their own equipment, tools, and, perhaps, additional people to help, plus they control how the work gets done and they do the same for neighbors down the road, they aren't an employee. They are an independent contractor.

What Types of Taxes Does the Household Employer Pay?

They pay Federal Insurance Contribution Act, or FICA, taxes that go to Social Security and Medicare. These are referred to as a payroll tax because they are withheld from an employee's paycheck. Every wage earner pays FICA taxes. Those who are employed pay half the total rate applied (15.3%) and the employer pays the other half. Those who are self-employed pay the entire rate themselves.

The Bottom Line

A household employee is someone who is paid a wage by a homeowner to provide a service at or in the household. They are directed by the employer in the type of work they perform and in the manner in which they must complete it. A household worker uses tools and/or equipment provided by the employer.

The employer will withhold an amount for taxes from the wages that they pay the household worker.