HomePay: Fast Facts About Legal Pay by Tom Breedlove
Many families hiring help in the home are hiring for the first time and, as such, may be unsure if they have legal requirements surrounding taxes and payroll. Here are a few “fast facts” to help keep families on the up-and-up:
1. The Social Security and Medicare (FICA) Threshold in 2022 is $2,400. If you pay an individual this amount or more, you are required to withhold FICA from their wages as well as make a matching FICA contribution to the IRS.
2. A Wage Notice or Work Agreement is required.
3. California has two wage thresholds for household employers: $750 per calendar quarter for State Disability Insurance (SDI), and $1,000 per calendar quarter for Unemployment Insurance (UI) and Employment Training Tax (ETT). If you pay a total wage amount (includes all employees) above these thresholds you are required to withhold a small tax for SDI (1%) from the employee’s pay, report quarterly employment taxes and remit the employee’s SDI along with the employer taxes for UI and ETT.
4. State and Federal Income Taxes are not required to be withheld. However, the employee will be required to pay those taxes at year so it is recommended to withhold those tax obligations each pay period.
5. Domestic employees should be provided a W-2 at the end of each tax year from their employer, not a 1099, and the family should file a Schedule H with their personal income tax return.
6. California requires employers to provide paid sick time. Accrual amounts and caps are based on your city or location. They are generally about 1 hour for every 30 hours worked up to 5 days per year.
7. Workers’ Compensation is a requirement in the state of California for anyone hiring help in the home. Coverage can usually be added to your existing homeowner’s insurance policy.
If you’re concerned about the cost of legal pay, the good news is there are dependent care tax breaks that can offset a significant portion of the employer tax cost. If you’re concerned about how to get all of the above done correctly, please reach out to us at HomePay. We specialize in domestic employment and take care of all state and federal obligations with award-winning customer service and guaranteed accuracy and satisfaction.
And when you pay legally, your employee will be entitled to important benefits like Social Security, Medicare, Unemployment, Disability, Paid Sick Leave, and the ability to obtain a loan.
At HomePay, we are the nation’s leading domestic tax and payroll provider, are available to answer any questions that you have regarding requirements, budgeting and more. Our team can be reached at firstname.lastname@example.org or 877-367-1969. You can also learn more about their service through our website.