Maybe while you're on Active Duty or perhaps more likely after you retire from the military, you may decide to hire some help around the house. This may be a nanny or someone to take care of Mom or Dad. If you decide to do this, you become an employer and there are tax responsibilities that come with that.
There have been more than a few high-profile politicians that have goofed this up. You don't want to join them.
Filing Your Taxes
The good news is, at the Federal level, you can in most cases file and pay your employer taxes when you file your Federal return. This is accomplished by completing a Schedule H to your Form 1040.
States may or may not allow you to file and pay annually. You'll need to check with your State Department of Revenue.
Which Taxes Do You Need to Pay and/or Withhold?
If someone is working for you for more than a month or two, you'll need to withhold Social Security and Medicare Taxes. Social Security (in the case of a household employer) is 6.2% of all wages. Medicare taxes are withheld at 1.45% of all wages.
But that is not all you will need to pay when you file. When you file, you will pay a total of 15.3% (12.4% Social Security and 2.9% Medicare) of wages in combined employer and employee FICA taxes. You might want to plan for that.
As a Household employer, you do not need to withhold and/or pay Federal Income Taxes at all.
That may not be the case for State Income Taxes. It really seems to depend on the state. And if your Nanny lives in a neighboring state, check and see if income taxes are due in the state where the work was done (your state) or the state where the Nanny resides. Here in the National Capital Region, it most cases it is the state of residence.
That's Not All
Income taxes and Social Security/Medicare taxes are not the only "tax" you need to pay. It is likely that you will also need to pay unemployment insurance to your State and the Federal Government. You will pay your Federal Unemployment Insurance with your individual tax return and report it on Schedule H. The states are not as patient and there is a pretty good chance you'll need to file and pay unemployment insurance quarterly (at least until you reach the annual cap). Even if you don't owe tax, you'll need to file the return.
Your military life is busy enough. If you'd like someone who works with people just like you every day, give us a call.
If you found this article useful, you might like the following blog posts:
Retired Military Finances 401: Using an Accountable Plan in an S Corporation to Effectively Deduct Employee Expenses