Over the past few years, household employers have seen a rapid increase in labor law requirements driven by state-level Domestic Worker Bill of Rights legislation, as well as state and municipal paid time off and paid sick leave ordinances.
For many families, these worker protection laws have added new wage and hour law wrinkles to payroll processing, as well as tracking and accrual complexities. They’ve also made it easier for workers to pursue remedies from current and former employers.
The various COVID relief packages passed in 2020 took these complexities to another level by giving domestic employers and their tax professionals a few more things to deal with:
- The Families First Coronavirus Response Act provided emergency paid sick leave to all workers — the qualified amount being dependent on the reason for the employee’s leave. Additionally, paid family and medical leave was expanded to include all employers (such as domestic employers, which have traditionally been exempt from this requirement in most places). As with all employers, these qualified wages are 100 percent reimbursable through a federal tax credit. However, for domestic employers, the tax credit is received by reporting qualified wages on an updated Schedule H.
- The Consolidated Appropriations Act of 2021 extends the FFCRA timeframe through March 31, 2021. Although the leave is no longer mandatory, employers can voluntarily provide the leave and take the credit on their 2021 tax return. This does not provide for additional leave or additional tax credits; it is merely an extension of the timeframe, which originally had been set to expire at the end of 2020.
- The turmoil of 2020 has increased awareness among families and caregivers that critical safety nets are directly tied to wage reporting. A dirty little secret that’s not so secret is that, over the years, paying domestic employees under the table has been fairly common. With COVID and a wounded economy, things like unemployment benefits, stimulus checks, paid sick leave and documented wages in order to obtain credit have all suddenly become extremely important. These short-term protections — plus long-term protections like Social Security, Medicare, disability and new employer fears of a wage dispute from a former, disgruntled employee — have driven many families to reconsider the risk/reward ratio and put their domestic employee’s wages on the books.
Because of these factors, you may have clients who want to “catch up” and report 2020 domestic employment wages — or ask you to help get things set up correctly going forward. Many tax professionals find this to be an area where strategic outsourcing helps increase operational efficiency and mitigates liability.
