• You may need to remit taxes for your nanny or babysitter.Junge mit Trinkflasche image by R.-Andreas Klein from Fotolia.com
  
  The Internal Revenue Service defines household employees as those for whom you control the work and the manner in which it is performed. Housekeepers, babysitters, maids, cooks and gardeners would meet this definition. Contractors such as those who perform plumbing, repair and lawn care services would be considered independent contractors rather than employees. There are specific rules for collecting, reporting and paying taxes related to household employees.
  
  

Social Security and Medicare

• As of 2010, the employee and the employer each pay half of these taxes, which is 12.4 percent for Social Security and 2.9 percent for Medicare. This equates to 7.65 withheld from the employee and 7.65 percent the employer must pay. Household employees who earn more than the amount set by the IRS ($1,700 as of 2009) must have deductions made to cover these taxes unless the employer chooses to pay the entire 15.3 percent.
  
  An employer who chooses to pay the employee's half should include it on the employee's W-2 with other payments for the purposes of income tax but not for Medicare or Social Security wages. The employer also does not report these amounts for federal unemployment purposes.
  
  If the household employee is the employer's spouse, parent or child under 21, there is no need to deduct or remit Social Security or Medicare taxes. A student younger than 18 also is not subject to these taxes. However, if the parent cares for the employer's child who is younger than 18 or if the child has a condition requiring adult care four or more consecutive weeks in any quarter, the wages are subject Medicare and Social Security. Parent's earnings are also subject to these taxes if the employer is an unmarried divorcee, widow or if the employer's spouse has a condition preventing him from providing child care a minimum of four consecutive weeks in any quarter.
  
  

Federal Income Tax

• Employers do not need to make deductions for federal income tax unless the employee requests. If so requested, employers should make withholdings based on the IRS publication Circular E (Employer's Tax Guide), which contains tax tables for withholding.
  
  

Federal Unemployment Tax

• Employers must pay federal unemployment tax (FUTA) if payments exceed the current threshold during any quarter for the previous two years. For 2009 and 2010, this threshold is $1,000 per quarter, and only the first $7,000 of wages is taxable for FUTA. Wages paid to a parent, child under 21 or spouse are not subject to FUTA. Employers bear the full cost of federal unemployment taxes and are not to deduct them from employees' wages.
  
  

Filings and Returns

• If an employer withholds and/or remits Social Security and Medicare amounts or makes deductions for federal income tax, he must issue a Form W-2 to the employee at year's end. These forms are filed along with the Form W-3, which is a cover summary of the Form W-2s being transmitted.
  
  Employers who submit Form W-2 or who must pay FUTA are also required to submit a Schedule H with their Form 1040 when filing their personal tax return. The Schedule H must be filed even if it is not necessary to submit a Form 1040. Sole proprietors who are required to file Form 940, Form 941, Form 943 or Form 944 to report FUTA for business or farm employees may include household employees on these returns, eliminating the need for a Schedule H.