As a household employer of a senior caregiver in California, navigating the complexities of tax obligations can be challenging. This comprehensive guide for the 2024 tax year will walk you through the essential steps, so you can remain prepared, compliant and in control.
Determining Your Status as a Household Employer
First, it's crucial to understand if you're considered a household employer. If you hire a senior caregiver and control what work is done and how it's performed, you are a household employer. As an employer, for the 2024 tax year, key tax thresholds include:
- Paying $2,700 or more in wages to a caregiver in the calendar year triggers Social Security and Medicare tax obligations, often collectively called FICA taxes.
- Paying $1,000 or more in wages in any calendar quarter requires payment of federal unemployment taxes (FUTA).
Registering as an Employer
Once you've determined your status, you must register as a household employer with federal and state officials. Clara assists with this process by:
- Registering your household with the IRS and California Employment Development Department (EDD).
- Obtaining an Employer Identification Number (EIN) on your behalf.
Setting Up Payroll
Establishing a reliable payroll system is crucial in order to accurately calculate taxes, and provide tax-compliant paystubs to employees. Clara simplifies this by:
- Tracking and documenting caregiver hours
- Calculating wages and withholding necessary taxes automatically
- Providing detailed, compliant paystubs
- Providing easy access to mandatory workers' compensation insurance
See here for more on Payroll and Compliance in California.
Understanding Tax Responsibilities
As a household employer in California for 2024, you may be responsible for several taxes. If you paid $2,700 or more in wages to a caregiver over the course of the year, and $1,000 or more in wages in any calendar quarter, you are responsible for:
Federal Taxes
1. Social Security and Medicare Taxes (FICA):
- The combined FICA tax rate is 15.3% of wages (7.65% each from employer and employee).
- Clara calculates and withholds these taxes from each paycheck
2. Federal Unemployment Tax (FUTA):
- FUTA is 6% on the first $7,000 paid to each employee annually.
- Clara ensures accurate FUTA payments on your behalf
3. Federal Income Tax Withholding:
- While not mandatory for household employees, Clara does offer and support federal income tax withholding
California State Taxes
1. California Unemployment Insurance (UI) & Employment Training Tax (ETT):
- UI rates vary. In 2024 the standard rate for household employers was 3.4%. ETT was set at 0.1% for 2024.
2. State Disability Insurance (SDI):
- For 2024, the SDI withholding rate was 0.9% on wages up to $153,164.
3. Personal Income Tax (PIT):
- Similar to Federal income tax withholding, Clara supports withholding of state level income tax by default, although it is not legally mandatory for household employers to withhold
Providing Required Documentation
Clara handles the generation and distribution of all essential tax documents:
- Form W-2: Summarizes annual wages and taxes withheld, provided to caregivers and employers by January 31, 2025.
- Form W-3: Summarizes all W-2s submitted to the Social Security Administration.
- Schedule H: Reports household employment taxes on your personal income tax return.
Clara files W-2s and W-3s with the IRS and provides you with the Schedule H form for your tax return.
Maintaining Compliance Throughout the Year
To stay compliant in 2024:
- Pay at least California's minimum wage ($16.00 per hour statewide; higher in some localities).
- Pay overtime for hours worked beyond 9 per day or 45 per week.
- Provide mandatory sick leave as required by California law.
- Keep detailed payroll records for at least three years.
Clara ensures compliance by generating detailed pay stubs and managing all payroll records electronically.
Filing Quarterly State Tax Reports
California requires quarterly reporting of wages and taxes:
- File DE 9 (Quarterly Contribution Return) and DE 9C (Quarterly Report of Wages).
- Remit UI, ETT, SDI, and any PIT withheld.
Clara handles these filings automatically, ensuring timely submission to avoid penalties.
Taking Advantage of Tax Credits
As a household employer, you may qualify for tax benefits:
1. Child and Dependent Care Tax Credit:
- Claim up to $3,000 per dependent or $6,000 for two or more dependents for caregiving expenses. This credit is available to household employers of senior caregivers if the care recipient is legally classified as your dependent.
2. Health Reimbursement Arrangements (HRAs):
- Reimburse caregivers' healthcare costs tax-free through QSEHRA or ICHRA plans.
Consult with a tax advisor to maximize these benefits for your specific situation.
End-of-Year Preparation
Before the end of 2024:
- Verify caregiver information including name, address and social security number for accurate W-2 filing.
- Ensure all payroll taxes are paid in full.
- Review payroll records for accuracy.
Clara supports these year-end tasks by generating comprehensive reports and ensuring timely form filings.
Key Deadlines for Household Employers in 2024/2025
Clara ensures all deadlines are met on your behalf, providing peace of mind throughout the tax year.
Why Choose Clara Home Care?
Managing payroll and taxes as a household employer can be complex, but Clara simplifies the process:
- Automated payroll processing reduces errors and saves time.
- Expert handling of federal and state tax filings ensures compliance.
- Transparent pricing without hidden fees makes budgeting easier.
By partnering with Clara you can focus on providing quality care for your loved ones while we handle the intricacies of payroll and tax compliance.
Remember, this guide is designed to provide general information for the 2024 tax year. Tax laws and regulations can change, so it's always advisable to consult with a tax professional for personalized advice regarding your specific situation.
