Ok, so it’s not very exciting – no, more like sleep-inducing…
Does anyone have any recommendation for software that allows one to compute the payroll withholding for household employees? That also handles individual state taxes (including unemployment insurance)?
I ask it this way because there will only be one such employee, and so who needs a full-fledged payroll package?
(I think I have to withhold for 4 jurisdictions: Federal - IRS + FICA, State - income tax + unemployment insurance, local income tax, and school district income tax. I know there won’t be any software that does the local stuff.)
Alternately, is it not too hard to do this by hand, since there’s only one?
Quickbooks will do all that. It handles most of your list standard. You input the local income and school taxes, if necessary, and have it take care of those, too. Payroll service updates are by subscription, but you can get the current rates and update them yourself if you don’t want to pay the yearly rate.
It’s not hard to do by hand, but you will need to acquire the relevant tax tables.
Thanks, peri. I went to the various web sites (IRS, state tax, local tax) and found out that you don’t have to withhold federal and state income taxes on household employees. You just have to keep track of their income so you can pay the FICA and Federal UI on your Schedule H.
State UI and the local taxes are a different matter, but the forms seem simple enough.
So I think I’ll do it by hand.
(By the way, Quickbooks is pretty expensive for someone like me with only one employee, if I did want to do their withholding. But thanks for starting me on this voyage of discovery.)
I use TurboTax (39.95) and you can prepare the Schedule H with it. You pay the taxes on Line 59 of your 1040. You just fill in the numbers, e.g. wages, and the program figures the social security, medicare, and FUTA for you. If you pay more than $1400 in a year you are an employer and have to apply to IRS for an Employer Identification Number. You may have to pay over withholding on a F941 quarterly , but I’m not sure of the amount where you have to start doing this. You need to request the withholding tables from IRS.
My son just opened a business and incorporated and I have never seen such a complicated mess in my life, tax-wise. I have to wade through all that stuff. Thank god for tax software.
I have a household employee and I do it manually, using Excel. I do have things categorized in Quicken so that when I write her check, it figures out that, say, 400 bucks gross, 50 goes for Federal income tax, 40 goes for FICA, and she nets 310 bucks (I’m making those numbers up, BTW). At the end of the year, I match the Quicken totals against the spreadsheet totals to confirm they match. Nice thing about Excel is that I can customize the spreadsheet to handle extra stuff, like overtime, state withholding, vacation tracking etc. Of course, a software package would presumably handle all that more smoothly.
You aren’t legally required to withhold the federal or state income tax, but you do have to have tax IDs. I can’t comment on local income taxes (we don’t have 'em where we live). You’ll probably have to file quarterly withholding reports to the state, local, and state unemployment offices - in my state, these can all be done in about 10 minutes online.
Make sure you have enough withheld from your paycheck (or you pay quarterly estimated taxes) to cover the employee’s FICA withholding (including your share as the employer). You’ll file that Schedule H when you do your own Federal return, and that’s how you report his/her total withholding for the year. The tax due gets added to your total tax bill - which won’t be a problem if you’ve had your own pay withheld at a higher rate. Presumably, if you don’t withhold enough of your own pay, you could get hit with an IRS penalty.
You’ll also have to file a W-2 for the employee in January. These used to be a PITA to do, as you have to use the official government multi-part forms if you don’t have software. HOWEVER - as of this year, SSA has a website targeted specifically at the very small employer (< 20 employees). You input all the numbers, click submit, and it’s filed for you - and you get a nice PDF of the W-2 that you can print off and give to your employee. HUGE improvement over doing it manually.
