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We know the stress and uncertainty created by complicated tax and labor laws.
The information here will clear up the confusion.
Families with questions about Washington nanny taxes need to look no further than this overview for all their household employment answers. And those that don't feel comfortable keeping up with the tax and labor law requirements themselves can utilize our comprehensive service to take the work and worry off their plate.
When a family hires someone to perform duties in or around their home, they are considered a “household employer.” The IRS views the worker — whether a nanny, health aide, housekeeper, senior caregiver, gardener, chef, personal assistant, estate manager, etc. — as an employee of the family in nearly every case. Misclassifying an employee as an “independent contractor” (using Form 1099) is considered tax evasion, so please call us if you're not sure how to classify your worker.
Household employers have four primary tax responsibilities. These are sometimes referred to as the Washington “nanny tax” obligations:
*It is not legally required that income taxes be withheld. However, we strongly advise it so that the employee does not have a large tax burden at the end of the year and is not subjected to underpayment penalties.
The Fair Labor Standards Act (FLSA) provides the framework for federal and state wage and hour law. Household employees are classified under the FLSA as non-exempt workers. Non-Exempt workers in all 50 states are covered by the rules and protections of the FLSA. Washington may supplement the federal law with additional state and municipal labor law.
Minimum wage in Washington is currently $9.32 per hour.
Overtime requirements are not determined by the amount of hours or by the type of pay (hourly or salary); they are determined by the type of work. The FLSA requires domestic workers be protected by overtime laws. The requirements for Washington household employers are as follows:
The current federal mileage reimbursement rate is 56 cents per mile. This rate, which covers the cost of gasoline as well as general wear and tear on the car, should be used to calculate reimbursement payments to an employee who drives her own vehicle while “on the job.” Mileage reimbursement is not considered taxable compensation, so neither the employee nor the employer is required to pay any taxes on that portion of the compensation.
Note: Miles driven while commuting to and from the jobsite are not considered “on the job.” If the employer reimburses the employee for commute mileage, it is considered taxable compensation.
Workers’ Compensation Insurance: Household employers in Washington are required to carry a workers’ compensation insurance policy if two or more employees each work 40 or more hours per week or if an employee is providing nursing care. Workers’ compensation assists with medical expenses and lost wages if an employee has a work-related injury or illness. It also provides protection to the employer since workers who accept benefits generally forfeit their right to sue the employer – regardless of fault. As part of the HomePay setup process, we guide our clients to a simple, affordable workers’ compensation policy.
Unemployment Insurance: Washington unemployment insurance is a state-managed program that provides financial assistance to help laid-off workers make ends meet until they can find another job. This “insurance” is funded through taxes that employers are required to pay on wages paid to employees. These taxes flow into a general fund and unemployment benefits are distributed from the fund to employees who are “let go” from their job due to no fault of their own. The Washington Employment Security Department (ESD) determines whether or not an applicant qualifies for benefits after reviewing their online or paper application and/or by conducting a telephone interview. Benefits paid to a former employee by the ESD may trigger a future tax rate increase for the employer.
Health Insurance: Household employers in Washington are NOT required to pay for their employee’s health insurance. However, there are some tax incentives to do so. First, an employer's contributions toward health insurance premiums are not considered taxable income, so neither the employee nor the employer are required to pay any taxes on that portion of the compensation. Second, employers who pay for at least 50% of their employee’s health insurance premiums can capitalize on the Health Insurance Tax Credit for Small Employers (HITC). This tax break provides a credit of up to 50% of the employer’s contributions – as long as the average annual wage for all employees is less than $50,000 and the policy is purchased through SHOP (Small Business Health Options Program).
The bottom line: Health insurance is a tax-advantaged form of compensation that can create significant tax savings for both employer and employee.
Starting October 1, 2013, employees in Washington will have an online health insurance exchange which will provide a marketplace where they can compare plans.
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