I can only answer your questions generally because there are
exceptions, caps, minimums, etc. I have included links below which
confirm and discuss the taxes I have cited, and for the actual
specifics that only you know.
1) What is the employer's liability?
SS Withholding & Medicare (FICA), Federal Unemployment (FUTA), and
possibly Earned Income Credit (EIC).
Are there any exceptions?
..."You are not required to pay employment taxes on wages you pay to
your spouse, your child under age 21, your parent (unless an exception
is met), or an employee who is under age 18 at any time during the
year, providing that performing household work is not the employee?s
principal occupation. If the employee is a student, providing
household work is not considered his or her principal occupation..."
2) The unpaid taxes for the entire period of employment?
3) Interest on the unpaid taxes?
4) A big or small penalty on top?
PROBABLY. It depends on the case. Large penalties are usually
negotiated through a tax attorney. The penalty is graduated, the
largest penalties are for the funds due the longest period of time,
lesser penalties for funds due recently, but past the "late" stage.
Very VERY small chance, the government would have to prove you had
knowledge of the tax and willfully, purposefully, evaded paying it
(for years), then decide they are angry enough at you in particular to
enforce the law (and make you unable to earn income and pay more taxes
while you are in jail). Very unlikely.
6) Could the employee become eligible for a social security benefit
based on the social security taxes that should have been paid or were
paid at court order after the fact?
YES, that's the whole point:
Social Security Online - Household Workers
Household workers are employees like anyone else and claim Social
Security when they reach 62 or more years of age. The fact is, they
qualify for these benefits whether or not they were deducted and or
paid --as they should have been. Whether or not you are, or will be
ordered to pay back taxes (enforcement), is not related to whether the
person is elegible for benefits. The fact is, when they apply for
benefits and report their employer and the years they worked, --this
starts a new "enforcement" case. The employee is liable for 1/2 of the
SS tax (6.2%), so it's not something they are happy to find out. This
is deducted from their benefits, and they then go to the employer/s to
collect the rest.
Hiring Household Employees
..."You have a household employee if you hired someone to do household
work and that worker is your employee. The worker is your employee if
you can control not only what work is done, but how it is done. If the
worker is your employee, it does not matter whether the work is full
time or part time or that you hired the worker through an agency or
from a list provided by an agency or association..."
..."If you employ someone in your home that does not work for an
agency in an employee relationship and you pay them cash wages in 2005
of $1,400 or more you may be required to withhold and remit to the IRS
Social Security tax and Medicare tax, known as FICA, and pay an equal
amount of tax from your own funds. You may also have to pay Federal
Unemployment tax to the IRS, known as FUTA, and an advance payment of
the earned income tax credit if the employee qualifies and asks for
2005 Instructions for Schedule H (Form 1040)
Household Employment Taxes
To get the ball rolling you need an Employer Identification Number (EIN):
Visit the IRS website (www.irs.gov.) or call 1-800-829-3676 for information.
This IRS publication states you are responsible for reporting
household wages on Schedule H:
1) Social security taxes. Multiply gross paid by 12.4% (.124)
..."Both you and your household employee may owe social security and
Medicare taxes. Your share is 7.65% (6.2% for social security tax and
1.45% for Medicare tax) of the employee's social security and Medicare
wages. Your employee's share is the same..."]
You fill out a standard W2 for the employee and deduct 7.65% from the
gross pay as the employee's portion of the tax, you send in the entire
2) Medicare taxes. Multiply gross paid by 2.9% (.029)
3) FUTA tax (Federal Unemployment Tax) Multipy gross by 6.2% (.062)
..."you may be able to take a credit of up to 5.4% against the FUTA
tax, resulting in a net tax of 0.8%..."]
You may, depending on your state, be required to pay state unemployemnt as well.
4) Reporting the recipient's name, address, wages and SS# on a W2. You
are also required to fill out a Schedule H along with your 1040.
NOTE: You are not required to withhold federal income tax from wages
you pay a household employee, unless the employee asks you to withhold
the funds, and you agree.
Publication 926 (12/2005), Household Employer's Tax Guide
..."To steer clear of trouble with the IRS when you hire a nanny to
take care of your children in your home, a yard worker to clean up
your lawn, or some other domestic helper, you need to think like a
special kind of boss'a household employer.
Who is a Household Employee?
If you have hired someone to do household work as an employee, meaning
you control what work is done and how it is done, you have a household
--It's not up to you to say whether your worker is an employee. The
IRS defines that for you.
--It doesn't matter whether the person works full or part time for you.
--It doesn't matter whether you hired that person through an agency or not.
--It doesn't matter how often you pay your worker -- hourly, daily,
weekly or whatever.
--If you can control what work is done and how the work is done by
your worker, he or she is considered to be your employee.
If you can control what work is done and how the work is done by your
worker, he or she is considered to be your employee..."
HOUSEHOLD EMPLOYEES ---- A Special Payroll Tax & Reporting Challenge
If I can clarify any of this, please don't hesitate to ask, --although
I direct you top the disclaimer at the bottom of this page, your best
bet might be a tax attorney next...
IRS "Household Employee"