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With just a few more schedules to go, our journey into the alphabetized schedules of the U.S. Individual Income Tax Return will be over just as summer begins. The next in line is Schedule H, Household Employment Taxes.
As usual, we will first clarify some of the most important terms pertinent to this topic.
The IRS specifies that a household employee is someone you hire to do household work around your private home as long as you control not only what work is done but how it's done. |
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It doesn't matter if the work is full-time or part-time or if you hired the worker through an agency or a list provided by an agency or association. Nevertheless, if you pay that money to your spouse, your parent, your child who’s younger than 21, or any student who is younger than 18, then that person is not considered your household employee.
Household employees include: babysitters, caretakers, butlers, cooks, house cleaners, domestic workers, chauffeurs, health aides, housekeepers, nannies, private nurses, yard workers. If, for instance, you have a nanny who lives in your home and takes care of your children five days per week, she's more likely a household employee than the plumber you call a few times per year.
People who provide services at your home as independent contractors aren't treated as household employees. The plumbers, electricians and babysitters you occasionally hire, for example, are independent contractors who take care of their own employment taxes.
If you pay a household employee $2,100 or more per year (the baseline amount for calendar year 2018), you have the same tax withholding obligations as a business. Your employee must fill out a Form W-4, Employee’s Withholding Allowance Certificate, so you can withhold taxes, provide pay stubs, and file a Schedule H with your federal income tax return.
Schedule H is used to calculate and report Social Security and Medicare taxes, federal income taxes withheld (if any) and federal unemployment taxes for your household employees.
Whether you file an income tax return or not, you should still file a Schedule H with the IRS.
If you have household employees, you will need an employer identification number (EIN) to file Schedule H. If you don't have an EIN, you may apply for one online by going to IRS.gov/EIN.
When you hire a household employee to work for you on a regular basis, you and the employee must each complete part of the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification.
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It is unlawful to employ a person who can't legally work in the United States, so you must verify that the employee is either a U.S. citizen or a person who can legally work in the United States and you must keep Form I-9 for your records. You can get the form and the USCIS Handbook for Employers by going to the USCIS website at USCIS.gov/I-9-Central, or by calling 800-870-3676.
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Household employment taxes are important because they establish a work history for employees, entitling them to benefits such as social security and Medicare, and unemployment if they are laid off. In a few states, domestic workers are eligible for disability insurance if they are unable to work due to injury or illness. You and your employees generally pay these taxes in equal amounts.
To figure the total cash wages you paid in 2018 to each household employee, do not include amounts paid to any of the following individuals: your spouse, your child who was under age 21, your parent, or your employee who was under age 18 at any time during 2018.
If you reimburse your employee for qualified parking, transportation in a commuter highway vehicle, or transit passes, you may be able to exclude the cash reimbursement amounts from counting as cash wages subject to social security and Medicare taxes. Qualified parking is parking at or near your home or at or near a location from which your employee commutes to your home. It doesn't include parking at or near your employee's home. |
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For 2018, you can reimburse your employee up to $260 per month for qualified parking and $260 per month for combined commuter highway vehicle transportation and transit passes.
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The social security tax rate is 6.2% each for the employee and employer (to a total of 12.4%). The social security wage base limit is $128,400.
The Medicare tax rate is 1.45% each for the employee and employer. There is no wage base limit for Medicare tax.
For information about the rates and wage threshold that apply in 2019, see Publication 926, Household Employer's Tax Guide, which can also help you decide whether you have a household employee and, if you do, whether you need to pay federal employment taxes (social security tax, Medicare tax, FUTA, and federal income tax withholding).
You must file Form W-2, Wage and Tax Statement, for each household employee to whom you paid $2,100 or more of cash wages in 2018 that are subject to social security and Medicare taxes. To find out if the wages are subject to these taxes, see the Instructions for Schedule H. |
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Even if the wages aren't subject to these taxes, if you withheld federal income tax from the wages of any household employee, you must file Form W-2 for that employee.
If you file one or more Forms W-2, you must also file Form W-3, Transmittal of Wage and Tax Statements. For information on electronic filing, go to the SSA's Employer W-2 Filing Instructions & Information website at SSA.gov/employer.
You must give your employees their copies of Form W-2 and send Copy A of Form(s) W-2 with Form W-3 to the SSA by January 31 of 2019 for wages paid in 2018.
In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year.
The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs.
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Like most employers, you may owe both the FUTA tax and a state unemployment tax. Or you may owe only the FUTA tax or only the state unemployment tax.
Do not collect or deduct the FUTA tax from your employee's wages. You must pay it from your own funds.
To find out if you owe state unemployment tax, contact your state's unemployment tax agency. For a list of state unemployment tax agencies, visit the U.S. Department of Labor's website at oui.doleta.gov/unemploy/agencies.asp.
You should also find out if you need to pay or collect other state employment taxes or carry workers' compensation insurance.
You can file Schedule H with your Form 1040, 1040-NR (U.S. Nonresident Alien Income Tax Return), 1040-SS (for residents of the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and the Commonwealth of Puerto Rico (Puerto Rico) who are not required to file a U.S. income tax return), or 1041 (U.S. Income Tax Return for Estates and Trusts). (If you’re not filing a tax return, file Schedule H by itself.) |
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Enter the household employment taxes you owe for having a household employee on Line 60a of Schedule 4 of Form 1040.
You pay both income and employment taxes to the United States Treasury when you file Schedule H with your return.
You don’t have to use Schedule H if you chose to report employment taxes for your household employees along with your other employees on Form 941, Employer's QUARTERLY Federal Tax Return; Form 943, Employer's annual Federal Tax Return for Agricultural Employees; or Form 944, Employer's ANNUAL Federal Tax Return. If you report this way, be sure to include your household employees' wages on your Form 940, Employer's Annual Federal Unemployment Tax Return. |
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You must keep copies of Schedule H and related Forms W-2, W-3, and W-4 for at least 4 years after the due date for filing Schedule H or the date the taxes were paid, whichever is later. You must also keep records to support the information you enter on the forms you file. If you must file Form W-2, you will need to keep a record of each employee's name, address, and SSN.
Before ending this newsletter, we have to emphasize once again how important it is to enroll help from a tax professional when filing your tax return and in all your dealings with the IRS to make sure you file an accurate return, minimize your tax liability, and take advantage of all the credits and deductions you are entitled to. |
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