Tax Considerations for Au Pairs in the United States
Broadly speaking, "Au pair" is a French phrase meaning "at the par" or "at the peer" [level] and is used to describe someone who boards temporarily in someone else's home. The term takes on a very narrow technical definition in United States law, however, and carries with it various tax obligations. An au pair is a visitor to the US admitted under a J-1 visa as part of an exchange program run by the Bureau of Educational and Cultural Affairs, cannot stay more than a year, and is required to be between 18 - 26 years of age. Usually au pairs are students who desire the cultural and educational experiences provided by the program. At any one time, there are approximately 12,000 au pairs in the United States.
The au pairs are housed with families chosen as hosts by organizations sponsoring them, and are required to be provided with private sleeping arrangements, meals, two weeks of paid vacation, at least one weekend off every month, as much as $500 to be used toward higher education, as well as a stipend related to the U.S. minimum wage. In addition they must not work over 10 hours per day, nor over 45 hours each week. They perform a child care role, but are not required to do housekeeping. Finally, they must be enrolled for at least 6 semester hours of classes at a post-secondary educational institution (although they can merely audit classes if they want).
The United States Department of Labor has determined the stipend is essentially a wage since the relationship is one of employer-employee between them and the host family. Au Pair wages are essentially in the nature of household employment, so many of the requirements in Publication 926, Household Employer’s Tax Guide apply.
Au Pair Taxes
Let's see what au pairs should know about US taxes.
Medicare and Social Security Taxes
In most cases, wages paid to an au pair are not subject to Medicare and social security taxes since they are a J1 nonimmigrant and nonresident alien. But, if they were previously in the US under Q, M, J, or F status, they may be considered a resident alien, which could trigger the requirement for the employer (host family) to withhold Medicare and social security taxes if their annual au pair wages exceed the applicable dollar threshold found in IRS Publication 926. Please refer to Alien Liability for Social Security and Medicare Tax. If withholding is required, the au pair may need to obtain a social security number, and the employer an Employee Identification Number.
Income Tax Withholding
Wages paid to an au pair are considered gross income for the recipient, and they are obligated to file United States tax returns. Because au pairs are paid for their work in a private home setting, they are not subject to mandatory US income tax withholding and reporting on Form 941 and W-2.
An au pair is likely to have a US tax obligation given the current minimum wage and typical number of hours worked. Therefore, the IRS recommends that au pairs do one of these two things:
- File and pay U.S. estimated income tax payments during the year on Form 1040ES-NR if the au pair is a nonresident alien, or on Form 1040-ES if the au pair is a resident alien, or
- If both the au pair and the host family agree, file Form W-4 with their host family, indicating on line 6 of such form that the au pair voluntarily wishes a withholding amount of U.S. federal income tax deducted from their weekly au pair wages. The host family will report and pay over this withheld federal income tax on Schedule H of Form 1040. The host family will also issue Form W-2 Wage and Tax Statement to the au pair to report their au pair wages and income tax withholding. In this case, the au pair must have a social security number and their host family must have an Employer Identification Number.
Federal Unemployment Taxes (FUTA)
As with Medicare and social security taxes, the nonresident alien status of the majority of au pairs means the host family is exempt from federal unemployment taxes. But again, if they were previously in the US under Q, M, J, or F status, they may be considered a resident alien - meaning their host family is liable for unemployment taxes as required by law. Details are in Publication 926.
Income Tax Return and disqualified tax credits of Au pairs
The majority of au pairs will need to file an income tax return on Form 1040NR. As nonresident aliens, they cannot claim the tax credits namely Hope Credit, Earned Income Tax Credit, or Lifetime Learning Credit. Although they enroll in classes, their primary function is not that of a student, so they cannot use student provisions of any tax treaties
Do au pairs have to pay taxes?
The IRS (Internal Revenue Service) considers au pairs to be employees of the host families for tax reasons, even though they are in the United States on a “cultural exchange” visa. Au pairs are required to file U.S. individual income tax returns and need to have either a Social Security Number or an Individual Taxpayer Identification Number (“ITIN”). The weekly payments in the form of stipend made to the au pairs are subject to income taxation and by the filing due date, au pairs should file form 1040-NR to report their au pair stipend earned for the previous calendar year. It is likely that the au pair will have an income tax liability on their U.S. individual income tax return because nonresident aliens are not able to claim the Standard Deduction or Stimulus Plan Credits.
Are au pairs tax-deductible & Au pair tax credit
Child and Dependent Care Tax Credit: As long as the host family has used an au pair’s child care services in order to work or look for employment, the stipend paid to the au pair, the costs of room and board and the program fees paid to cultural care are all eligible under the Child and Dependent Care Tax Credit. However, a Host family is advised to verify their particular situation with their tax advisor. Additionally, in order to claim the credit, the host family will need to provide the au pair’s social security number
Dependent Care Reimbursement Programs: The eligibility requirements for these programs (often called “Flex-Spending Accounts” or “FSAs”) are usually identical to those for the Child and Dependent Care Tax Credit. Please note that expenses paid for using Dependent Care Reimbursement Program funds are not also eligible for the Child and Dependent Care Tax Credit.
Requirement to file Schedule H by the host family
Since stipend amounts 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. However, if the au pair is a resident alien and their annual au pair wages exceed the applicable dollar threshold, then the host family must withhold social security and Medicare taxes and report them on Schedule H, Household Employment Taxes, of Form 1040 and on Form W-2.