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Massachusetts Fact Sheet Household Tax Compliance Tips

HOMEWORK SOLUTIONS IS HERE TO HELP!

Payroll tax compliance for your new employee does not need to be terrifying, time consuming or expensive. HomeWork Solutions is a nationally recognized “household payroll” service company, providing household employers nationwide with trusted and time saving payroll and payroll tax solutions.

WORKER CLASSIFICATION IS THE KEY

You become a household employer when you hire an individual to perform duties and provide services under your direction in your private home. Generally, these workers are your employees, not independent contractors. Failure to properly classify the worker and make the appropriate employment tax filings and payments is considered tax fraud by the IRS.

PAYROLL TAX RESPONSIBILITIES

You are responsible for federal employment taxes when you pay household workers as little as $1,000 in a calendar quarter or when you pay any individual employee age 18 or over $2,700 in a calendar year.

You have both Federal and State tax filing responsibilities. Federal employment taxes are reconciled with the household employer’s annual Federal Income tax return. Your state may require quarterly unemployment tax filings, as well as reports and remittance of state income taxes withheld, if applicable. Employee wages are reported to the Social Security Administration. Your employee is due a W-2 form in January.

Social Security and Medicare Taxes

The household employer is responsible for the payment of all Social Security and Medicare taxes to the IRS. You may choose to either collect your employee’s taxes via payroll deductions or fund these taxes yourself.

Unemployment Taxes

You will make contributions to the IRS and Massachusetts to fund unemployment and worker re-training programs.

Income Taxes

Federal and state income taxes are ultimately the responsibility of the household employee; however, best practice is to deduct these taxes from your full time employee’s wages to help them avoid owing large sums when they file their annual income tax returns.

OTHER LEGAL RESPONSIBILITIES

Verification of Work Eligibility

All U.S. employers are required to verify a candidate’s employment eligibility using Form I-9.

Fair Labor Standards Act (FLSA) Compliance

Maintain accurate and contemporaneous records including time tracking, gross pay calculations, and detailed records of all deductions from the employee paycheck.

Pay no less than minimum wage on an hourly rate basis.

Health Insurance

You are not required to provide employee health insurance, however there are financial and retention advantages to contributing some or all of your employee’s health insurance premium. HWS is happy to discuss this with you.

MASSACHUSETTS LABOR LAWS

Minimum Wage

Massachusetts defers to the FLSA, which requires that all domestics, excluding companions, be paid at no less than the greater of the state or federal minimum wage.

Massachusetts minimum wage is $15.00/hr. It will continue to increase each year until it is $15.00/hr in 2023.

Overtime Pay

All workers are to be paid an overtime differential of 1.5 times the hourly wage for hours over 40 in a work week. Live-in employees must receive overtime compensation. Overtime or premium pay is not required for hours worked in excess of 8 per day or on weekends or holidays.

Paid Time Off

Massachusetts employees accrue earned sick time on all hours worked at a rate of one hour of earned sick time for every 30 hours worked, including overtime hours, up to a cap of 40 hours per benefit year. Employers with 10 or fewer employees are not required to provide paid leave, but must still provide unpaid leave accrual at the same rate.

Effective 1 Jan 2021, employees are eligible for MA Paid Family Leave, from funding via employee payroll tax deductions of 0.63%.

Employees who work 40 or more hours a week must get at least 1 full day (24 hours) off each week and 2 full days (48 hours) off each month. They may give up this right through a written agreement with you, the employer.

You are required to pay accrued vacation leave upon separation from employment.

Mileage Reimbursement

In Massachusetts, employers are legally required to reimburse their employees for all necessary expenses incurred during work-related travel, including mileage. The federal government establishes and updates a maximum rate for non-taxable mileage reimbursement each year. The current rate is $0.67 per mile.

Payroll Frequency

Massachusetts allows you to pay your household worker daily, weekly or bi-weekly, but does not allow semi-monthly or monthly pay cycles. Pay upon discharge is due immediately, and upon resignation on the next scheduled pay date.

Payroll Documentation

Each time you pay an employee, you must provide them with a record of all deductions taken from their wages.

Massachusetts requires you to provide your employee a paystub detailing all deductions taken from their pay, and any benefit contributions made by the employer on the employee’s behalf.

Employees who work 16 or more hours a week must receive a timesheet at least every two weeks that shows the number of hours worked each day.

Employment Contract Requirements

The Massachusetts Domestic Workers Bill of Rights (DWBR) has employment contract requirements. You must give employees who work 16 or more hours a week a written work agreement.

This document should provide information about the regular and overtime rate of pay, raises or increases in pay for added duties or skills, work schedule and job duties, rest periods, sick leave, holidays, vacation, personal days, any other benefits, charges or pay deductions, eligibility for workers’ compensation, process for raising and resolving concerns, notice of termination by the worker or employer, why and when the employer will enter the worker’s living space (live-in workers), and what is “cause” for termination (live-in workers).

A sample agreement can be found here.

Workers’ Compensation Insurance

Massachusetts requires Workers’ Compensation Insurance when a household employee works 16 or more hours per week. You may purchase this from a commercial insurance company approved by the MA State Insurance Commission or from MA WCRIB (wcribma.org). HWS can help you obtain this insurance through our insurance partner (just give us a call).

State Unemployment Insurance

Massachusetts requires a new employer state unemployment insurance tax of 1.87% for the first $15,000 wages paid to each employee. This may vary if you have previous employees.

Frequency of Tax Filings

Massachusetts requires quarterly tax filing for unemployment insurance and income tax withholdings, you need to file and pay your taxes quarterly.

Domestic Workers Bill of Rights (DWBR)

Massachusetts has a Domestic Workers Bill of Rights which adds regulations for minimum wage, overtime, time off from work, and other protections for employees.

HWS WILL HELP YOU DO THE RIGHT THING

HWS knows that most families want to pay their household employees legally and ensure that the employee receives workers compensation and unemployment insurance protections. You also want to establish a principled relationship with your employee who is caring for and interacting with precious family members. Getting the relationship started on the right footing, including complying with legal and tax formalities, helps set the tone for the relationship.