Some families employ babysitters, housekeepers, tutors, and other household help to work on a temporary or part-time basis. In order to ease the tax requirements on these families, the IRS modified the law in 1995 to give an exemption to families who pay any individual less than $1,600 (2008) in a calendar year. If your household employee is below that threshold, you are not required to withhold taxes from her salary, nor do you have any federal tax responsibilities as an employer.

Please note that your state will require you to pay unemployment insurance and other applicable state taxes at a lower compensation threshold (typically, the threshold is $1,000 or more in a calendar quarter to all employees combined). That means, if your total household payroll is more than $1,000 in a calendar quarter, you are required to meet the state payroll tax obligations.

While families with temporary employees get a reprieve from taxes and the tax process, please note that the temporary employee does not. Like all wage earners in the United States, he or she must still report all wages to the IRS at year end and is responsible for paying any federal and state income taxes.

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