Q: I own a business. Can I pay my nanny through my company payroll?
A: While it may be tempting to do so, it is illegal, in most cases, to pay a household employee on a business payroll.
The legal basis for keeping business and household payroll separate, according to the IRS, is that businesses can receive a tax break on their payroll costs because the employees directly contribute to the company’s success. A household employee does not directly impact the success of a business the way a business employee does, and therefore a nanny or other domestic worker’s wages must be paid on the employer’s personal federal income tax return, either annually or quarterly.
The only instances when reporting household employment taxes on the employer’s business federal income tax return are acceptable are:
- if the employer is a sole proprietor, or
- if the home is on a farm operated for profit.
In either of these cases, the employer may opt to include federal household employment taxes with their federal employment tax deposits or other payments for the business or farm employees.
Another way this issue arises is when it comes to health insurance. A company’s group health insurance policy cannot include household employees, as they are not employed by the company. Insurance companies will likely refuse to pay any benefits if you submit a claim for a household employee through a business insurance policy. Read about the ways you can help your household employee get health insurance coverage here.
Contact us for more information at (518) 348-0400.