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Guide to Tax Exemptions Based on Age, Student Status, and Family Relationship

Employees providing domestic services such as personal assistance may be exempt from paying certain federal and state taxes based on the employee’s age, student status or family relationship to the employer. In some cases, the employer may also be exempt from paying certain taxes based on the employee’s status.  IMPORTANT: Please see IRS Publication: #926 – Household Employer’s Tax Guide, and IRS website article: “Foreign Student Liability for Social Security and Medicare Taxes” for additional information.

 

IMPORTANT:

·         These exemptions are not optional. If the employee and employer qualify for these tax exemptions, they must be taken.

·         If the employee’s earnings are exempt from these taxes, the employee may not qualify for the related benefits, such as retirement benefits and unemployment compensation.

·         The questions regarding family relationship refer to the relationship between the employee and the employer of record (common law employer). In some cases, the program participant is the employer of record.  In other cases, the employer of record may be someone other than the program participant. Check program rules.

·         Program rules may prohibit some types of employees. For example, most Medicaid‐funded programs do not permit a spouse to be paid as an employee for providing services to a spouse. Check program rules.

·         PCG Public Partnerships will determine the tax exemptions that apply to the employee and employer based on the information provided by the employee. PCG Public Partnerships cannot provide tax advice.

 

Tax Exemptions for Non‐Resident Students

For a non‐resident student in the United States on an F‐1, J‐1, M‐1, or Q‐1 visa admitted to the US for providing domestic services, the employer and employee are exempt from paying FICA (Social Security and Medicare taxes) and the employer is exempt from paying FUTA (Federal Unemployment Tax) on wages paid to this employee.  The employer may also be exempt from paying State Unemployment Insurance, depending on the rules in the state.

 

Tax Exemptions for Children Employed by Parent

For a child under 21 employed by his or her parent, the employer and employee are exempt from paying FICA (Social Security and Medicare taxes) and the employer is exempt from paying FUTA (Federal Unemployment Tax) on wages paid to this employee until the child (employee) turns 21 years of age.  The employer may also be exempt from paying State Unemployment Insurance, depending on the rules in the state.

 

Tax Exemptions for Spouses Employed Spouses

For a spouse (husband, wife, or domestic partner in some states) employed by his or her spouse, the employer and employee are exempt from paying FICA (Social Security and Medicare taxes) and the employer is exempt from paying FUTA (Federal Unemployment Tax) on wages paid to this employee.  The   employer may also be exempt from paying State Unemployment Insurance, depending on the rules in the state.

 

Tax Exemptions for Parents Employed by Children

For a parent employed by his or her child and answering “No” to any of the additional questions under Question #5 (on the Information and Attestation – Relationship Questionnaire) regarding caring for a grandchild or step grandchild, the employer and employee are exempt from paying FICA (Social Security and Medicare taxes) and the employer is exempt from paying FUTA (Federal Unemployment Tax) on wages paid to this employee. The employer may also be exempt from paying State Unemployment Insurance, depending on the rules in the state.

 

For a parent employed by his or her child and answering “Yes” to all the additional questions regarding caring for a grandchild or step grandchild, the employer is exempt from paying Federal Unemployment Tax (FUTA) on wages paid to this employee. The employer may also be exempt from paying State Unemployment Insurance, depending on the rules in the state.

 

Tax Exemptions for Employee under Age 18

For employees under the age of 18 or turning 18 in the calendar year: If the employee is a student, domestic services are deemed not to be the employee’s principle occupation and the employer and employee are exempt from paying FICA (Social Security and Medicare taxes).

 

Employment Relationship Status

Federal Insurance Contributions

Act ‐ Social Security and

Medicare Taxes

(FICA)

Federal Unemployment Tax

Act

(FUTA)

State Unemployment

Insurance

(SUI)

Foreign Student on VISA in US for Purpose of Providing Domestic Service

FICA exempt

FUTA exempt

See footnote (1)

Child Employed by Parent

FICA exempt only until 21st

birthday

FUTA exempt only until 21st

birthday

See footnote (2)

Spouse Employed by Spouse

FICA exempt

FUTA exempt

SUI exempt (3)

Parent Employed by Child

FICA exempt only if not also caring for dependent child of the employer (employee’s grandchild)

FUTA exempt

SUI exempt except in NY and WA.  See footnote (4)

Employee Under 18 or Turning Age 18 in Calendar Year

FICA exempt through year of 18th

birthday only if enrolled as a full‐ time student

Not Applicable

Not Applicable

 

(1)      Foreign student in the United States on F‐1/J‐1 VISA is exempt from SUI in the following states: PA, WA.

(2)      Child under 18 employed by parent is SUI exempt in the following states: CA, IL, MA, ME, NJ, NV, OH, OR, PA, SC, TN, WA, WV. Child under 21 employed by parent is SUI exempt in the following states: AZ, GA, IN, KS, NY, OK, VA, WY, and District of Columbia.

(3)      For California only, a registered domestic partner employed by his/her registered domestic partner is SUI exempt.

(4)      Parent employed by child is SUI exempt in all states and the District of Columbia except for NY and WA.

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