When hiring a housekeeper, there are several tax issues to consider. These include the deductibility of the housekeeper's wages and other expenses and the rules surrounding withholding taxes. In most cases, you cannot deduct the cost of hiring a housekeeper, but there are exceptions to this rule, if you own a home-based business.
Housekeeper Cost and Witholdings
The IRS requires you to withhold Social Security and Medicare taxes from your housekeeper and pay your share if they deem you to be a household employer. The IRS does not consider how many hours per week the housekeeper works, or whether you hired her from an agency. They consider you to be a household employer if you provide all of the tools for the work and control how it is completed.
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If your housekeeper provides all of her own cleaning supplies and has a measure of control over how to do the housework, she is not your employee, and you do not have to withhold or pay taxes. This housekeeper is deemed to be self-employed for tax purposes. You should pay them their gross wage and not deduct any amount for income tax, Social Security or other deductions.
Tax and a Personal Housekeeper
If you do not own a home-based business, you cannot claim the cost of a housekeeper on your tax return as an expense, even if you are a household employer. Housekeeping expenses are considered personal in nature and are not deductible. This is true even if you must have a housekeeper due to an injury or medical condition.
Housekeeping costs are specifically disallowed by the IRS as an eligible medical expense. However, a portion of the cost may be deductible if the housekeeper also provides personal care services.
Consider also: Are Medical Expenses Deductible? What You Need to Know
Home Office Expenses
If you qualify to claim home office expenses, you may be able to deduct a portion of the costs of a housekeeper as a business expense. To be eligible to claim home office expenses, your home office must be your main place of work or you regularly meet with customers and suppliers there. The rules can be more complex than they seem, and your employment status as well as the home office space itself will determine whether you qualify and what you can deduct.
The business portion of your household expenses is calculated either by the number of rooms in the house or by the square footage used for business divided by the total square footage of the house. Eligible household expenses include mortgage interest, property taxes, utilities and repairs and maintenance. Housekeeping expenses would fall under the latter category.
Consider also: Guide to Home Office Deductions
Live-In Housekeeper Cost
If you hire a housekeeper and provide room and board, the IRS generally considers this to be a benefit to you and not the housekeeper and, therefore, not taxable to the employee. The rules require that the meals are provided in your house and that the lodging is a requirement of the job.