Employing a nanny or an elder-care giver may seem like a simple proposition, but in the eyes of the IRS it isn’t, according to Kerri Swope, a senior director of Care.com Home Pay, a networking site and resource for families that hire help in their homes.

Is it the responsibility of your client as a home-care employer to report workers’ earnings to the IRS? Should the worker receive a 1099 tax form or a W-2? Is he or she an employee or an independent contractor?

The answer to those and other questions raised by families and their financial advisors are not simple, according to Swope. They are nuanced and, although spelled out in IRS guidelines, can be complicated.

Taxes for household employees are often dubbed the "nanny tax," although that is a misnomer because it applies to any type of household employment. Anyone who pays a household employee more than $2,000 a year (raised from $1,900 last year) is considered an employer.

“This comes with responsibilities and requirements that should be taken seriously in order to avoid fines, penalties and even the dreaded audit,” says Care.com Home Pay.

For those who top this income limit, determining whether someone is an independent contractor or an employee is a little more nuanced. The person is an independent contractor and receives a 1099 form if she brings her own equipment to the job, sets her own hours and can send a substitute to do the work, among other things. The employer does not have to withhold any taxes.

If the homeowner defines the job responsibilities and controls the details, such as when the worker shows up, then she is an employee and should receive a W-2 form. The homeowner is responsible for withholding taxes and for reporting to the IRS. Typically, Social Security and Medicare (collectively known as FICA) and federal and state income taxes are withheld from the employee each pay period. The employer has to pay a matching portion of FICA, as well as pay federal and state unemployment insurance taxes.

“Some people try to do this own their own, and it is doable,” Swope says. “But this is why we, and other companies like us, exist. We can do this for homeowners or for their financial advisors. The IRS estimates it takes 55 hours a year to handle the paperwork required for a household employee.”

There are also benefits available that most people do not know of that can help pay the costs for the homeowner, she says. A homeowner often can qualify for a dependent care account and can contribute pre-tax dollars to help pay for child care or elder care. Some homeowners also can qualify for a child and dependent care tax credit.

Many small-business owners think they can legally put household help on their busines accounts. The household employees have to be paid separately and taxes have to be withheld by the household not the business.