With the older population in the United States on the rise, the need for household employees to provide care to them, as well as the need for the household employer to comply with payroll tax laws for those employees, is greater than ever.
In part one of this article, we learned the advantages of paying “above the table.” Now, how do you keep up? How do you manage a household payroll and keep it all legal?
To paraphrase a favorite movie, let’s assume you’re an honest man (assume away). Typically, household employers report their federal taxes – income tax, FICA, unemployment, and so on – once a year, when they file their individual income tax returns by April 15th. Most states still require their income and employment tax obligations to be paid on a quarterly basis.
There are a number of options available to the household employer for managing payroll and payroll taxes for household employees. In fact, there are enough options that claiming “it’s too difficult” should not be a barrier to complying with the law. As one expert recently noted, it’s in your interest, so it’s worth the bother.
Here are your options.
There’s the time-tested but time-consuming “manual” method of handwritten checks and receipts stapled together, piling up in file folders month-by-month.
Some household employers have enough resources to hire an accountant or payroll service. A typical payroll service, which will calculate the appropriate deductions and may also prepare checks for you, can cost at least $500 per year, maybe more depending on the market and community in which you reside (you’ll probably pay more in New York City than in Lancaster, Pennsylvania, for example).
You may feel skillful enough to do it yourself by creating your own spreadsheet with a software program like Microsoft’s Excel®. Again, this is also a time-consuming approach, which requires that you not only know how to program the spreadsheet, but to manually input all the data yourself.
Integrated accounting software packages, such as the popular QuickBooks®, are excellent, but provide more features than a household employer will probably ever need. These software packages are not tailored to the household employer market, and can cost about the same per year as a domestic payroll service.
While popular personal financial programs such as Quicken® and Microsoft Money® have penetrated most households with experienced computer users, neither offers a payroll option or information about payroll tax laws.
The Wall Street Journal recently noted that “sales of tax preparation software are expected to rise briskly again this year, thanks in large measure to our tax system’s stunning complexity.” It’s this complexity that makes tax preparation software so attractive to the average consumer.
Programs like Intuit’s TurboTax® and H&R Block’s Tax Cut® are currently the market leaders for the general consumer. But, until recently, there were no programs tailored specifically to the payroll tax needs of the household employer.
A software company in suburban Philadelphia, Essentia Software Corporation, sells two software packages that expressly address the needs of the household employer – NannyPay® and ElderCarePay(TM). ElderCarePay is the company’s newest software product and was specifically intended for household employers of nurses, health aides, and other eldercare givers.
ElderCarePay was created by experts with first-hand experience in understanding and complying with the tax laws applicable to household employers and their employees. Designed for simple setup and use, ElderCarePay has robust payroll features that ease the burden of tax compliance for household employers.
ElderCarePay handles multiple employees, and prints a basic plain paper pay stub or payroll checks. It also calculates Federal and state payroll withholding taxes, and supports all 50 states. The software package also generates withholding and liability reports, prints Forms W-2 /W-3, and a Schedule-H [Household Employment Taxes.].
The latest version, ElderCarePay 2007, has a comprehensive and well-written “Employer’s Guide,” which outlines four easy steps to get users started on their way to tax compliance. ElderCarePay also includes all relevant Internal Revenue Service forms, and an extensive reference source of state tax agencies.
Unlike the competing payroll services or business payroll and tax preparation software programs mentioned earlier, an annual subscription for ElderCarePay costs only $147.95 per year. Included with the purchase of ElderCarePay is online access to all tax table and software updates for a full year. With tax laws constantly being revised, this service alone is a considerable benefit for household employers.
For those who find themselves too busy to set up their own household payroll system, ElderCarePay also offers a setup service for a fee, in which their experts will configure the software for the household employer and one employee, and additional employee can be added for a nominal one-time fee.
“Doing it yourself” with a software program like ElderCarePay can save a household employer as much as $700 per year compared to hiring a payroll service. A short-term investment of time and money to set up a software program like ElderCarePay can bring a number of long-term benefits, both financially and personally.
The need for such a software package increases the longer you employ household help, due to the relationship many people develop with such “personal” employees. They become like family in some cases, and it becomes more difficult to change caregivers. As a personal example, one of my elder relatives has been cared for by one caregiver for the past seven years, but due to that caregiver’s own sudden health concerns, my relative lost this long-term in-home caregiver. This necessitated a move into a nursing home for my relative, something that no one was happy with and upset everyone involved. While it was not a result of a financial change, it was very difficult to find someone to replace a person who had become “family.”
When you’ve already made the decision to play by the rules, obey the law and pay your household employee “above the table,” the cost savings of implementing software like ElderCarePay significantly offsets the cost of a payroll service even in the first year. Ultimately, it’s the right thing to do – for you, your employee, and your loved ones.