How to hire a maid -- the right way

You're also supposed to withhold your housecleaner's share of Social Security and Medicare (another 7.65%). The federal taxes come to about $3.22 an hour for a $20-an-hour cleaner, plus the state taxes.

If your employee wants you to withhold her federal and state income taxes from her paycheck, you're supposed to do that, as well. And then you're supposed to cough up all this cash when you file your personal tax return each year, along with a Schedule H to cover household help. (You may be required to make deposits of state unemployment or disability taxes more frequently, such as monthly or quarterly.)

Be smart about the paperwork

Tax pros say most people who hire help ignore the requirement that they pay taxes on their cleaners' wages. Some people argue that you can treat a part-time housecleaner as an independent contractor and avoid the hassles of tax withholding, if she:

• Brings her own supplies.

• Has many other clients.

• Works on her own schedule with minimal direction from you.

Others say this position may not hold up in an audit.

"You're walking on thin ice to the point where you should be wearing flippers," said Steve Duben, a CPA in Encino, Calif. "If you want to do it right, treat her as an employee."

Unfortunately, doing it right not only increases your costs -- it increases your hassles. You need to get an employer identification number, set up and maintain a recordkeeping system, investigate your state's tax requirements, withhold the proper amount from each paycheck, and file forms with the IRS and the Social Security Administration, among other tasks.

You can hand off these chores to somebody else, such as a bookkeeper, accountant or payroll tax firm, but these solutions aren't cheap. HomeWork Solutions, an online payroll tax company for domestic help, charges $425 a year just to do the tax preparation for you. You can pay more to get other services, including direct deposit.

So figure the cost of delegation will add $15 to $20 to the cost of a biweekly cleaning.

Do the right thing

Tempted to join the majority, ignore the whole thing and pay your cleaner under the table? Let me make an argument for ethics.

Paying taxes isn't just the right thing to do -- it's the fair thing. Contributing to your worker's Social Security account helps ensure she'll have coverage in her old age. (Social Security may be headed for trouble, but it's likely to remain as a safety net. And let's face it: People who clean houses for a living are likely to need it.)

• Talk back: Is hiring a housecleaner worth your time and money?

If you really don't want the hassle, opt for hiring a service that takes care of these issues. Just make sure they do -- you don't want to line an unethical owner's pockets at the expense of her workers.

OK, if you've gotten this far, there's still one more issue to consider: Is my cleaner legally allowed to work in this country?

Your immigration responsibilities

U.S. law requires all employers to fill out the U.S. Citizenship and Immigration Services' Form I-9 (.pdf file), called Employment Eligibility Verification, and keep it for three years after the employee's hiring or one year after the employee's termination, whichever is later. (The form has recently been updated, so you should have the new version filled out for each employee even if you've got old ones on file.)

Filling out the form requires checking to make sure your employee has the appropriate documents to prove she's able to work in the United States. Employers who fail to fill out the new version of this form are subject to penalties ranging from $100 to $10,000.

Interestingly, you're supposed to pay taxes even if your worker isn't here legally. The IRS doesn't care about your employee's immigration status; it simply wants its cut. If your employee doesn't have a Social Security number, she can use IRS form W-7 to request an individual taxpayer identification number. (The IRS doesn't share these numbers or other information with the immigration service.) You can use this number on all your tax-reporting documents, including your worker's year-end W-2 form.

Once again, most people hiring individual cleaners ignore this requirement, and your chances of getting caught are probably slim. That doesn't make it right, though. We aren't going to fix the mess that is our current immigration system if we continue to flout its rules.

And if you're just trying to save a few bucks by hiring someone who's not working legally, then you're making an expeditious decision, not an ethical one. I'd urge you to cough up the extra bucks or keep cleaning your house yourself.

Checklist: If you hire on your own

• Get an employer identification number from the IRS using Form SS-4 (.pdf file).

• Fill out the immigration service's Form I-9 (.pdf) and keep it in your files.

• Ask for the worker's Social Security or taxpayer identification number.

• Find out what state taxes you or your worker may owe; you can find a link here.

• Withhold Social Security and Medicare taxes if you'll pay more than $1,600 in 2008 ($1,500 in 2007).

• Withhold federal and state income taxes if the worker requests it; have her fill out a Form W-4 (.pdf).

• Make periodic state tax deposits if required by law.

• Provide your worker with a W-2 form (.pdf) by Jan. 31 of the next year.

• File a copy of the W-2 with the Social Security Administration by Feb. 28.

• File a Schedule H with your personal tax return by April 15 and pay any household employment taxes owed.

Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published Jan. 10, 2008

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