During the COVID-19 pandemic, day care centers have closed, summer camps have been canceled and many schools have switched to a remote learning model. As a result, working parents have had to scramble to make alternative child care arrangements, which may include hiring nannies or babysitters. If you employ household workers — which may also include housekeepers, cooks, gardeners, health care workers and other employees — it’s important to understand your tax obligations. Here’s a quick review.

Someone working in your home doesn’t necessarily make him or her a household employee. You’re not required to withhold or pay taxes for independent contractors — such as occasional babysitters who work for many different families. The rules for distinguishing between employees and independent contractors are complicated, however, so be sure to consult your tax advisor if you’re uncertain.

Your tax obligations vary depending on the type of tax:

Income tax. You’re not required to withhold federal income taxes (or, usually, state income taxes) from a household employee’s pay, unless the employee asks you to and you agree. In that case, you’ll need to have the employee complete Form W-4 and you’ll need to withhold income taxes on both cash and noncash wages (other than certain meals and lodging).

Note: There’s no FICA tax liability for wages you pay to certain family members or to household employees under the age of 18 if working for you isn’t their principal occupation. A student who babysits on the side would be one example.

Unemployment taxes. You must pay federal unemployment tax (FUTA) if you pay total cash wages to household employees (other than certain family members) of $1,000 or more in any quarter in the current or preceding calendar year. The tax applies to the first $7,000 of an employee’s cash wages at a 6% rate, although credits reduce that rate to 0.6% in most cases. 

Unlike businesses, you generally don’t need to file quarterly employment tax returns for household employees. Rather, you report household employment taxes on Schedule H of your personal income tax return. However, if you own a business as a sole proprietor, you may add the taxes for household employees to the deposits or payments you make for your business employees and include household employees on Forms 940 and 941.

Even if you report household employment taxes on Schedule H, you’re still responsible for paying the tax throughout the year, either through quarterly estimated tax payments or by increasing withholdings from your wages. Otherwise, you’ll have to pay the tax when you file your return and be subjected to penalties for underpayment of estimated tax.

You’ll also need to file Form W-2 if you’re required to withhold FICA taxes or agree to withhold income taxes for a household employee.

In addition to the tax requirements discussed above, there may be other obligations that come with being an employer. These may include complying with minimum wage and overtime requirements, and documenting immigration status. Turn to your tax advisor for more information.