Household Employment Taxes

Trust fund taxes

Do You Have a Household Employee?

You have a household employee if you hired someone to do household work and that worker can be classified as your employee.

If a worker is classified as your employee and you pay the annual wage threshold ($1,900 for 2015) or exceed it, you and your employee must pay FICA taxes (Social Security and Medicare taxes).

Depending on the amount of wages you pay in any calendar quarter, you may also have to pay Federal Unemployment (FUTA) Tax. The employee does not pay FUTA tax, it is an employer-paid tax only.

If you must pay FICA taxes, you will need to issue a W-2 form to your household employee and a W-3 form to transmit the W-2 to the Social Security Administration..

When a Worker is Your Employee

A worker is your employee if you can control not only what work is done, but how it is done.

If the worker is classified as your employee, it doesn't matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also doesn't matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.

Example:

You hire a babysitter to take care of your child while you're at work. The sitter comes to your home five days a week. She follows your specific instructions regarding the care of your child.. You provide all supplies for the sitter to do her work. The babysitter is your employee.

Examples of household workers:

  • Babysitters
  • Caretakers
  • Domestic workers
  • Drivers
  • Health aides
  • House cleaning workers
  • Housekeepers
  • Maids
  • Nannies
  • Private nurses
  • Yard workers

When a Worker is Not Your Employee

If the worker controls how the work is done and not you, the worker is not your employee but is considered self-employed.

A self-employed worker usually provides his or her own supplies, offers services to the general public in an independent business, has more than one client, advertises for business, and sets her rates.

If a babysitter performs child care services for you in her own home and not your home, the sitter is generally not classified as your employee and you are not responsible for her employment taxes; she must handle her own taxes.

If an agency provides a worker and controls what work is done and how it is done, the worker is not your employee.

Example:

You hire Hilda Hyatt to care for your child. You drop your child off at Hilda's home and pick up your child after work. Hilda provides her own supplies and controls how she carries out her child care duties. Hilda is not your employee. She is self-employed and responsible for her own taxes.

Example:

You hire Jack Hammer to handle your lawn care for your home. Jack runs a lawn care business and offers his services to the general public. He provides his own tools and supplies, and he hires and pays any helpers he needs. Neither Jack nor his helpers are your employees.

Schedule H, Household Employment Taxes

Schedule H is used to determine your employment tax liability, which includes Social Security, Medicare, and FUTA taxes. Once you have determined the total amount of your employment tax liability, you simply add the total to your regular income taxes by entering it on Form 1040, line 60a. If you are not filing Form 1040, file Schedule H by itself.

Employment taxes and income taxes are payable to the: United States Treasury on or before the due date for filing Form 1040. If you get an extension to file your tax return (Form 1040), file Schedule H with your return by the extended due date.

Depending how you answer the questions below, you may or may not have to file Schedule H.

File Schedule H (Form 1040 ) if any one of the following 3 items is true:

  1. You pad cash wages (includes check, money order, cashiers check, currency) of $1,900 or more during 2015 to any one household employee ($2,000 or more for 2016). (This test determines whether you must pay FICA taxes.)
  2. You withheld federal income tax during the year from your household employee's pay. (You are not required to withhold federal income taxes unless the worker requests that you do so.)
  3. You paid cash wages totaling $1,000 or more in any calendar quarter during 2014 or 2015 to all household employees. (Do not include cash wages paid in 2014 or 2015 to your spouse, your child under age 21, or your parent.) (This test determines whether you must pay Federal Unemployment (FUTA) tax.)

Keep in mind, if the annual wage threshold is met or exceeded, FICA taxes are owed on the entire amount of wages paid, not just the amount over the annual threshold. For example, if you paid $2,000 in gross wages for the year to your babysitter, you and she would owe FICA taxes on the entire $2,000, not just the amount over the $1,900 threshold.

The idea behind the annual wage threshold concept was to make it easier for people who only needed to hire a babysitter for short or infrequent periods of time without being burdened with tax issues.

CautionIf you pay your babysitter less than the annual wage threshold ($1,900 for 2015), you are not required to issue her a W-2. Neither you nor she owes FICA taxes. However, the babysitter is responsible for reporting her earnings on her own tax return for federal income tax purposes.

FICA Taxes

If you expect to pay your household employee the wage threshold (or more) in any given year, you must withhold FICA taxes (Social Security taxes, 6.2% and Medicare taxes, 1.45%) from your babysitter's entire gross wages (unless you prefer to pay your sitter's share of these taxes out of your own funds). As the employer, you must pay your half of FICA taxes as well.

TIP: Even if you're not sure you will exceed the annual wage threshold, it's a good idea to withhold FICA taxes anyway. If you end up paying less than the annual wage threshold ($1,900 for 2015), you can refund the FICA taxes that you withheld to your employee (neither you nor she will owe these taxes).

Forms W-2 and W-3:

Issue a W-2 to your household employee only if you paid her the annual wage threshold ($1,900 or more for 2015).

W-3 is just the transmittal form used to list, summarize, and transmit all W-2 forms issued to employees. Send one copy of W-3 along with Copy A of W-2 to the Social Security Administration. Keep copies for your records. These forms can also be fled electronically. See the instructions at www.socialsecurity.gov/employer.

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