The designation of household employee can apply to a babysitter, nanny, maid, health care provider, or other domestic worker, and is not new.  Two tax acts passed in 2010 included increased information reporting requirements for Form 1099.  Do these new requirements apply to household workers?

No.  Form 1099 is used to report only payments made in the course of your trade or business, personal payments are not reportable.

So how do you determine if your domestic worker should be classified as a household employee?  Generally, if a worker controls how the work is done, provides their own tools, and offers services to the general public, they are usually classified as an independent contractor, not an employee.  The worker is generally an employee if the homeowner controls both how and what work is done.

If you have a domestic worker classified as an employee, there are certain thresholds that must be reached before reporting is required.  Federal filing requirements are:

•  If you pay wages of $1,700 or more per person, FICA withholding is required.
• If you pay wages of $1,000 or more in any quarter, FUTA tax must be paid.

Each state has its own requirements and you may be required to pay state unemployment tax even though no FUTA tax is due.  California requires you to register with the EDD after paying $750 in cash wages to one or more employee in a calendar quarter.  SDI is withheld from the employees pay and you are required to pay unemployment and training tax after paying $1,000 or more in cash wages in a calendar quarter.

There are certain exemptions from these requirements and income tax withholding is voluntary.

If you are concerned whether or not you could be classified as a household employer, please don’t hesitate to contact me.

In general, U.S. Taxpayers are required to report their worldwide income, that is income from both U.S. and foreign sources.  What may be unknown to many taxpayers is that in addition to reporting income from foreign sources, taxpayers who have an interest in, or signature authority over, a financial (bank) account in a foreign country are required to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).  This requirement applies if the aggregate value of all such financial accounts exceeds, $10,000 at any time during the calendar year.  The FBAR is not filed with your tax return.  Instead, it is filed with the Department of the Treasury in Detroit, Michigan, no later than June 30 of the year following the calendar year reported.

There are serious consequences for failing to report income in foreign bank accounts, or to file the FBAR, including large monetary penalties and, in some cases criminal penalties.

 In addition to the FBAR filing requirement, new for 2011 calendar year taxpayers (due April 15, 2012), is that any individual who during the tax year holds an interest in a specified foreign financial asset (a financial account maintained by a foreign financial institution) must attach to his or her income tax return the required information for each such asset if the aggregate value of all the individual’s specified foreign financial assets exceeds $50,000.  While this information is similar to FBAR it does not replace your FBAR reporting requirements. 

If you have foreign bank accounts and are unsure whether you are required to file the FBAR, we would be happy to review your portfolio and advise you.

The recently enacted Small Business Jobs Act of 2010 requires landlords to report payments of $600 or more to each service provider during the year to the IRS on Form 1099-MISC.  The $600 threshold is cumulative and applies to all payments made on or after January 1, 2011.  This means that you will need to obtain the name, Federal Tax Identification Number (or Social Security number), and address from all individuals and businesses that provide services to your property (gardeners, painters, property managers, maintenance people, etc.). 

I recommend you have each service provider complete Form W-9 at the time you engage his or her services, even if you are paying less than $600; you may utilize their services again later in the year.  Form W-9 is the form used to obtain required information from the service provider and can be downloaded from the IRS website.  Services provided by corporations will be exempt from this reporting requirement until 2012.

Although not required, it is advisable to obtain a tax ID number for yourself if you do not already have one.  The payor section of Form 1099-MISC requires either your tax ID number or your Social Security Number.  For privacy purposes, it is not prudent or wise to issue documents that display your Social Security number.

 As always, I am available to help you comply with these new filing requirements.