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Colorado Fact Sheet Household Tax Compliance Tips


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Payroll tax compliance for your new employee does not need to be terrifying, time consuming or expensive. HomeWork Solutions is a nationally recognized “household payroll” service company, providing household employers nationwide with trusted and time saving payroll and payroll tax solutions.

WORKER CLASSIFICATION IS THE KEY

You become a household employer when you hire an individual to perform duties and provide services under your direction in your private home. Generally, these workers are your employees, not independent contractors. Failure to properly classify the worker and make the appropriate employment tax filings and payments is considered tax fraud by the IRS.

PAYROLL TAX RESPONSIBILITIES

You are responsible for federal employment taxes when you pay household workers as little as $1,000 in a calendar quarter or when you pay any individual employee age 18 or over $2,200 in a calendar year.

You have both Federal and State tax filing responsibilities. Federal employment taxes are reconciled with the household employer’s annual Federal Income tax return. Your state may require quarterly unemployment tax filings, as well as reports and remittance of state income taxes withheld, if applicable. Employee wages are reported to the Social Security Administration. Your employee is due a W-2 form in January.

Social Security and Medicare Taxes

The household employer is responsible for the payment of all Social Security and Medicare taxes to the IRS. You may choose to either collect your employee’s taxes via payroll deductions or fund these taxes yourself.

Unemployment Taxes

You will make contributions to the IRS and Colorado to fund unemployment and worker re-training programs.

Income Taxes

Federal and state income taxes are ultimately the responsibility of the household employee; however, best practice is to deduct these taxes from your full time employee’s wages to help them avoid owing large sums when they file their annual income tax returns.

OTHER LEGAL RESPONSIBILITIES

Verification of Work Eligibility

All U.S. employers are required to verify a candidate’s employment eligibility using Form I-9.

Fair Labor Standards Act (FLSA) Compliance

Maintain accurate and contemporaneous records including time tracking, gross pay calculations, and detailed records of all deductions from the employee paycheck.

Pay no less than minimum wage on an hourly rate basis.

Health Insurance

You are not required to provide employee health insurance, however there are financial and retention advantages to contributing some or all of your employee’s health insurance premium. HWS is happy to discuss this with you.

COLORADO LABOR LAWS

Minimum Wage

Colorado defers to the FLSA, which requires that all domestics, excluding companions, be paid at no less than the greater of the state or federal minimum wage. Denver has additional minimum wage requirements.

Colorado minimum wage is $12.00/hr.

  • Denver minimum wage is $12.85/hr.

Overtime Pay

All live-out workers are to be paid an overtime differential of 1.5 times the hourly wage for hours over 40 in a work week, working more than 12 hours in a workday, or working more than 12 consecutive hours. Live-in domestics, again excluding companions, must be paid their hourly wage for all hours worked, without an overtime differential. Overtime or premium pay is not required for hours worked in excess of 8 per day or on weekends or holidays.

Paid Time Off

Colorado does not mandate any paid time off for non-exempt workers, except for voting leave. You must provide employees with up to 2 hours of paid leave to vote, unless:

  • an employee has not requested the leave at least one day prior to the vote date, or
  • the employee has 3 or more hours after the opening or before the closing of the polls where they are not supposed to be at work.

Colorado law requires that any earned paid time off must be paid out at time of separation.

Mileage Reimbursement

The federal government establishes and updates a maximum rate for non-taxable mileage reimbursement each year.  The current rate is $0.575 per mile.

Payroll Frequency

Colorado requires that all household workers be paid daily, weekly, bi-weekly, semi-monthly or monthly.  Pay upon involuntary separation is due immediately, upon resignation on the next scheduled pay date.

Payroll Documentation

Each time you pay an employee, you must also give them an itemized pay statement showing their gross wages earned, all withholdings and deductions, net wages earned, the inclusive dates of the pay period, their name or their social security number; and your name and address.

Employment Contract Requirements

Colorado does not have any employment contract requirements. However, a free sample work agreement can be found here.

Workers’ Compensation Insurance

Colorado requires household employers to obtain Workers’ Compensation Insurance if the employee works 5 days a week or 40 hours in a week. However, HWS ALWAYS recommends obtaining a Workers Compensation Insurance policy for the protection it provides in the event of a work-related injury sustained by your employee. A policy can usually be obtained easily and cost effectively by contacting your Homeowner’s or Renter’s Insurance provider. HWS can help you obtain this insurance through our insurance partner (just give us a call).

State Unemployment Insurance

Colorado requires a new employer state unemployment insurance tax of 1.7% for the first $13,600 of wages paid to each employee. This may vary if you have previous employees.

Frequency of Tax Filings

Colorado requires weekly, monthly or quarterly tax filing for income withholding and quarterly tax filing for unemployment insurance. HWS recommends filing quarterly for both.

HWS WILL HELP YOU DO THE RIGHT THING

HWS knows that most families want to pay their household employees legally and insure that the employee receives workers compensation and unemployment insurance protections. You also want to establish a principled relationship with your employee who is caring for and interacting with precious family members. Getting the relationship started on the right footing, including complying with legal and tax formalities, helps set the tone for the relationship.

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