Information for Au Pair in America Host Families Regarding Tax Issues and Workman's Compensation Insurance

The following information has been prepared to answer questions most frequently asked by Host Families concerning tax issues and hosting an Au Pair.

Q. Is withholding of Social Security tax required on the weekly stipend paid to each Au Pair?

A. The Internal Revenue Code states, "Services performed by a non-resident-alien while temporarily in the United States as a non-resident under subparagraph (J) of Section 101(a)(15) of the Immigration and Nationality Act are excluded from coverage under the Social Security Program if the services are performed to carry out the purpose for which the non-resident alien was admitted to the United States."

Q. Are the payments to the Au Pairs taxable to them and is Federal withholding required?

A. While the weekly stipend given to the Au Pair is not subject to Social Security, it is taxable to the Au Pair as wages. According to the IRS, there is no provision exempting these amounts paid, whether they have "J" visas or not. The IRS considers these payments to represent services rendered as a household "employee."

Federal withholding is not required unless the "employee" (Au Pair) asks the "employer" (Host Family) to withhold Federal income tax and the "employer" agrees to do so.

Q. Does the weekly stipend payment to each Au Pair represent a qualifying child-care expense to the Host Family?

A. Au Pair in America believes that it does; however, a Host Family should verify their particular situation with their tax advisor. Generally, the child-care credit is allowed to a taxpayer who maintains a household for one or more children. The children for whom a dependency exemption can be claimed must be under age thirteen, and the child-care expenses must enable the taxpayer to be gainfully employed or to seek gainful employment. These expenses include expenses for household services and the care of the child or children.

Q. Does the fee paid by the Host Family to Au Pair in America qualify as a child-care expense?

A. Possibly, however, we cannot answer for certain. On this point especially, Au Pair in America advises Host Families to discuss this issue with their tax advisor and obtain an opinion.

Q. Is Schedule H (Form 1040) required to be filed by the Host Family?

A. Since payments to the Au Pair are not considered wages for the purpose of Social Security Taxes, Medicare Taxes or Federal Unemployment Taxes, and since the Host Family is not required to withhold Federal Income Tax, Schedule H is not required to be filed.

Q. What effect do the IRS reporting requirements have on the Au Pair program?

A. Host Families who wish to take the child care credit on their Federal Income Tax Return or obtain reimbursement from an employer-sponsored, flexible spending account for the weekly pocket money paid to the Au Pair must have a Social Security number for their Au Pair.

Q. What is the I-9 form and why is it important?

A. The Department of State requires that all host families participating in an authorized Au Pair program are required to complete and retain the I-9 “Employment Eligibility Verification” form issued by the Department of Justice, Immigration and Naturalization Services for each au pair. You may request a copy of this form by calling your community counselor.

The requirements and procedure for an au pair to obtain a Social Security Card can be found at http://www.aupairinamerica.com/aupairs/social_security.htm.

Q. Am I required to purchase Workmen’s Compensation Insurance for my au pair?

A. While most host families have decided not to purchase Workmen’s Compensation insurance, the answer to this question depends on the laws of your state. You should pose this question to your insurance advisor and/or attorney. The program regulations of Au Pair in America do not require this coverage. Some states, like Massachusetts, exempt child care providers from the requirement of Workmen’s Compensation coverage. Other states require coverage if quarterly earnings exceed a certain amount.

Finally, as noted above, all these issues should be discussed with and confirmed by a Host Family's tax advisor.