ARIZONA DEPARTMENT OF REVENUE
ARIZONA WITHHOLDING TAX RULING
WTR 93-2
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ISSUE:
Can Arizona income taxes be withheld from compensation paid to a baby-sitter, governess, or nanny for services performed in a private home?
APPLICABLE LAW:
Arizona Revised Statutes (A.R.S.) § 43-401 requires every employer to withhold from wages, salary, bonus or other emolument paid to any employee, for services performed within the state, a percentage of federal withholding as specified or a greater percentage as elected by the employee.
A.R.S. § 43-403 excludes wages paid for domestic service in a private home from the Arizona withholding provisions.
Arizona Administrative Code (A.A.C.) rule R15-2-403 delineates some services of a household nature which, for purposes of the Arizona withholding exclusion, are considered to be domestic service when performed in or about a private home.
Internal Revenue Code (I.R.C.) § 3401 excludes from the definition of "wages," for purposes of federal income tax withholding, remuneration paid for domestic service in a private home.
Treasury Regulation (Treas. Reg.) § 31.3401(a)(3)-1 delineates some services of a household nature which, for purposes of the federal income tax withholding exclusion, are considered to be domestic service when performed in or about a private home.
DISCUSSION:
For federal purposes, compensation paid for services performed as a baby-sitter or governess are considered to be services of a household nature when performed in or about a private home. Compensation paid for such services is excluded from mandatory federal income tax withholding as remuneration for domestic service. Voluntary federal income tax withholding on such compensation is, however, permitted when the parties agree to have income tax withheld.
A.R.S. § 43-403 provides, for purposes of Arizona income tax withholding, that no amount shall be deducted or retained from wages paid for domestic service in a private home. A.A.C. R15-2-403 delineates some services of a household nature which are considered to be domestic service when performed in or about a private home and are, therefore, not subject to withholding. While services of a baby-sitter, governess or nanny are not specifically included in the services delineated in A.A.C. R15-2-403, when such services are performed in or about a private home, they are considered domestic service.
RULING:
For purposes of the Arizona income tax withholding exclusion, compensation paid for services performed by a baby-sitter, governess or nanny, in or about a private home, is considered to be wages for domestic service in a private home. Therefore, Arizona withholding is not required on such compensation and cannot be elected.
Harold Scott, Director
Signed April 23, 1993
Explanatory Notice
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