While most of us know this area of the tax code as the nanny tax, the IRS refers to this as household employees.
Definition. Basically the IRS believes individuals may unknowingly have employees that help them around their home. The nanny tax refers to three federal employment taxes (Social Security, Medicare, and federal unemployment tax) that employers must pay if the wages of certain household workers exceed a threshold amount.
The nanny tax only applies to your employees. A worker is generally considered to be your employee if you directly supervise the work and you supply the tools or supplies necessary to do the job. If your worker came from an agency or runs his or her own business, the nanny tax may not apply.
Who is included. Employees can include baby sitters, nannies, housekeepers, gardeners, health aides, and other household workers.
If you have any of these workers, it is always best to review your situation.