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What's New in Household Employment Since COVID-19 Began?

Here is what’s changed and what’s new in household employment to help you stay up-to-date and advise your clients who may have hired (or plan to employ) someone to work in their home.

Jun 30th 2020
Founder and CEO GTM Payroll Services
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Nanny playing with kids

It is no secret that the COVID-19 pandemic has changed the way we live and how we do business. Social distancing is part of our everyday lives, students across the county shifted to remote learning, millions lost their jobs, and many others in the workforce made adjustments to work from home.

The household employment industry was no stranger to change. Nannies and housekeepers could not go to work under “stay-at-home” orders, and many were left jobless.

Here is what’s changed and what’s new in household employment to help you stay up-to-date and advise your clients who may have hired (or plan to employ) someone to work in their home.

Required FFCRA Paid Sick and Family Leave Through End of the Year

Nannies and other household employees are eligible for paid sick and family leave under the Families First Coronavirus Response Act (FFCRA) that was enacted in April. Paid leave covers employees if they get sick or need to quarantine or they need to care for someone who is ill among other reasons. Families, in turn, can receive tax credits for their employee’s paid leave. These benefits extend through the end of the year.

Also, household employers are typically required to follow state and local paid sick and family leaves laws as well. This may necessitate your client to contribute and/or withhold from their employee’s pay to cover paid leave obligations.

Q1 and Q2 Nanny Taxes Due July 15

The pandemic pushed back the deadline to file Q1 estimated taxes to July 15, the same date that Q2 taxes are due. Household employers can file taxes quarterly using Form 1040-ES. This will help spread their employer tax responsibility over the course of the year rather than paying it all at once when they file their personal tax return. Owing too much in taxes could result in an underpayment penalty.

Personal tax returns also need to be filed by July 15. Do not forget to include Schedule H for clients who employ household help.

Understanding the Importance of Legal Pay

Families and their employees may have found it convenient to pay “under the table” and avoid taxes and other obligations. That has changed because of the pandemic that has left nannies, senior caregivers, and housekeepers among the millions of Americans without jobs. If they were paid illegally, then they were not eligible for unemployment benefits as well as paid sick or family leave. That left them without financial protections during a time when they needed a safety net more than ever. If they did file for unemployment, the family was exposed to paying illegally and likely faced fines, penalties, and payment of back taxes.

Tax-Free Payments for Employee’s Student Loans

The Coronavirus Aid, Relief and Economic Security Act (CARES) included a provision that temporarily allows employers – including families with household help – to make tax-free payments of up to $5,250 toward their employees’ student loans. Employers are already allowed to pay up to that amount per year toward an employee's qualified educational expenses — such as for tuition and textbooks — on a tax-free basis. The CARES Act provision expands that law to include student-loan repayment assistance as qualified educational expenses until December 31, 2020.

IRS Guidance on DCAPs

Families that employ a nanny can use a Dependent Care Assistance Program account (DCAP) from their employers to get tax-free reimbursements for a portion of their childcare costs. During the pandemic, many families let their nanny go potentially reducing their childcare expenses. In response, the IRS announced more options for unused amounts in a DCAPs. These options include an extended period for incurring DCAP expenses as well as revoking an election, making a new election, or adjusting the amount of an existing DCAP.

Flexibility with I-9 Documentation

Families hiring someone to work in their home need to obtain Form I-9 from their employee at the start of employment. It verifies the identity of the employee and their authorization to work in the United States. With stay-at-home orders and restricted online renewal services, employees may experience challenges renewing expired documents like a driver’s license. The Department of Homeland Security has issued a temporary policy that documents expired on or after March 1, 2020, and not otherwise extended by the issuing authority, may be treated the same as if the employee presented a valid receipt for an acceptable document for Form I-9 purposes.

Demand for Nannies Could be on the Rise

Now that businesses are slowly re-opening, parents are starting to leave “work-from-home” behind and head back to the office. However, a couple of developments may entice families to hire a nanny to care for their children as other options may not be feasible or preferred.

During the pandemic, many daycare facilities were forced to close. Some may never re-open and those that do will need to follow social distancing guidelines, which will limit the number of children they can take. Even if they have a spot, parents may not want to send their children to daycare because that could increase their risk of exposure to the virus. They may choose a nanny for private, in-home care to limit the number of people exposed to their family.

Also, President Trump’s recent proclamation extends the suspension of entry of aliens “who present a risk to the U.S. labor market following the coronavirus outbreak” through the end of the year. The initial suspension began in April and was to last 60 days. Au pairs are included in this group that is banned from entering the country to work. That means more families may be turning to nannies for private, in-home childcare.

Advising Your Clients

With the changing landscape in childcare and household employment, it is a good idea to check in with your clients who have household help or could be hiring an employee. Now is a time when more families with young children could be considering private, in-home care. Make sure they are aware of paid sick and family leave and other benefits for their employees as well as tax, wage, and labor laws to ensure compliance.

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