My family just hired a household employee. We plan to pay the worker approx. $12,000 net pay annually, gross up to any employee FICA and income taxes, and to pay the employer FICA, FUTA, etc.
Intuit Tax Caster says that the worker will likely get a refund if we gross up and withhold taxes. So my question is, can we simply pay the employer share of taxes and not withhold anything or only withhold very little from the employee's pay in order to avoid paying any grossed up withholdings that would just be refunded to the worker anyway? Would that cause any legal problems with the IRS?