by Julia Furtado on Jul 25, 2023 11:57:20 AM
Whether you need childcare, landscaping help, or other assistance around the home, you may hire workers at some point. And that makes you an employer of sorts who is responsible for filing a Schedule H and remitting payroll taxes for your household employees. If you’ve never had to deal with these responsibilities before, you may be wondering exactly what you need to do. We’ll break down the requirements for you here. In this article, we’ll explain what you need to know about Schedule H, who’s considered a household employee, the payroll tax withholding rules for these workers, and your recordkeeping responsibilities. After reading this, you’ll be prepared to withhold and pay taxes for your household employees correctly to avoid steep IRS penalties.
What is Schedule H?
Schedule H is a form you file with your taxes if you have household employees that you pay more than $2,600. It is filed annually with Form 1040.
When you pay a household employee wages over this threshold, you are subject to payroll taxes, meaning, your share of Social Security and Medicare taxes for your employees. If your workers make more than $1,000 in a quarter, you’ll also need to withhold unemployment taxes.
As an employer, you’ll withhold these amounts from your workers’ paychecks. Then, at tax time, when you complete your Schedule H tax form, you’ll report the amount of:
- Wages paid
- Social Security and Medicare taxes withheld
- FUTA tax liability
- Income tax deducted (if applicable)
This form, like Form 1040, and your tax payment are due by the tax filing deadline each year. You will need an Employer Identification Number (EIN) in order to file Schedule H, which you can apply for online. If you don’t file Schedule H with your personal income tax return, or you don’t withhold the required taxes from your employees’ wages, you may be in arrears and could face penalties.
What is a household employee?
Household employees are those that work in your home. These may include:
- Cleaners
- Babysitters and nannies
- Caretakers
- Home health aides and private nurses
- Yard and garden workers
- Cooks
A household worker is your employee if you can control not only what work is done, but also how it is done. It doesn’t matter if:
- The work is full-time or part-time
- You hired the worker through an agency or from a list provided by an agency
- Whether you pay the worker on an hourly, daily, or weekly basis, or by the job
While there are other types of professionals you may hire to perform work in your home such as plumbers or electricians, these are not considered household employees but rather independent contractors or self-employed workers. The main distinction is that household employees work under your control in terms of how the work gets done.
It’s important to note that there are some exceptions to those who are considered household employees. Specifically, the following are exceptions:
- Your spouse
- Those under age 21
- Your parent unless an exception is met
- An employee under age 18 at any time during the year unless performing household work is their principal occupation (if they are a student, performing household work isn’t considered to be their principal occupation)
In addition, help you hire for non-household-related work like a tutor for your child isn’t considered a household worker.
When you determine that you have household employees, you’ll want to check the rules in your state for new hire reporting, since many, like Massachusetts, require that you report within 14 days of hire.
How are household employee wages paid?
As a household employer, you can pay your employees their wages with cash, check, money order, mobile payment, or direct deposit. You’ll also need to decide how often you’re going to pay your workers, such as weekly or biweekly.
What are my household employment tax obligations?
When you pay cash wages of $2,600 or more in 2023 to any one household employee, you are subject to payroll taxes. While employees can decline income tax withholding, it’s important to note that employees don’t have a choice when it comes to payroll tax withholdings for Social Security and Medicare.
To get household employment taxes right, there are some key steps you may be required to follow.
- Get W-4s: While you don’t have to withhold federal income tax from your household employee’s wages, if they ask you to and you agree, they’ll need to fill out Form W-4.
- Complete Form W-2: If you have to withhold and pay Social Security and Medicare taxes, or if you withhold federal income tax, you’ll need to complete Form W-2 for each employee. This form is used to report their wages to them. In order to send a copy of Form W-2 to the Social Security Administration, you’ll need to complete Form W-3.
- Pay FUTA: If you paid cash wages to household employees that totaled more than $1,000 in any calendar quarter during the calendar year or prior year, you generally have to pay FUTA tax on the first $7,000 of cash wages you pay to each employee. This doesn’t apply, however, to wages you pay to your spouse, your child who is under the age of 21, or your parent. You may also need to pay state unemployment taxes depending on the laws where you live. You can find out the rules by contacting your state unemployment tax agency.
- File Schedule H: As we discussed earlier, if you pay wages subject to Federal Insurance Contributions Act (FICA) or FUTA tax, or if you withhold federal income tax from your employee’s wages, you’ll need to file a Schedule H tax form and attach it to your individual income tax return. If you’re not filing a return, you’ll submit Schedule H by itself. Either way, the form is due by April 15, 2024, for the 2023 tax year, and can be sent by mail.
- Remit Any Additional State Taxes: If your state requires you to remit Paid Family and Medical Leave (PFML) contributions on behalf of employees to your state’s Department of Revenue or withhold and remit temporary disability tax, be sure you understand the requirements for meeting your responsibilities.
How long do Schedule H and other payroll records have to be kept for a household employee?
When you have household employees, you’ll need to maintain payroll records just like any other employer. You should keep Schedule H and related Forms W-2, W-3, and W-4, if applicable, for at least 4 years after the Schedule H due date or date you paid your taxes.
Each pay period, you should also record the payday, dates of work, wages paid, and taxes withheld.
Getting Wages & Taxes Right As A Household Employer
As you can see, understanding the rules for payroll taxes for your household employees can be confusing. But getting them right is essential to avoiding an underpayment tax penalty from the IRS. To help you navigate the laws and regulations to make sure you’re in compliance, you may want to use an outsourced payroll provider. If you’re thinking about this route, it’s important to learn the top tips for choosing a vendor to ensure they’re a good fit for you and your household’s needs.
This blog was originally published in May of 2021 and was updated in July of 2023 for accuracy and comprehensiveness.
