Schedule H (form 1040), Household Employment Taxes
If you hire people to do work around your house on a regular basis, they might be considered household employees. Being an employer comes with some responsibilities for paying and reporting employment taxes, which includes filing a Schedule H with your federal tax return. But even if you have household employees, filing Schedule H is required only if the total wages you pay them is more than certain threshold amounts specified by federal tax law.
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.
Household employees commonly include housekeepers, maids, nannies and babysitters if you control which tasks they’re responsible for and how they complete them. It essentially depends on the facts and circumstances of each situation. But if 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.
When Schedule H must be filed
Your tax return must include Schedule H only if you pay any single employee at least $2,300 in the 2021 tax year, or cash wages to all household employees totaling $1,000 or more during any three-month calendar quarter during either the current or previous tax year. Although you’re not required to withhold federal income tax from a household employee’s wages, you must file Schedule H if you do withhold tax for an employee who requests it.
Who Needs To File Schedule H?
If you hired someone to do household work and you could control what work he or she did and how he or she did it, you had a household employee. This is true even if you gave the employee freedom of action. What matters is that you had the right to control the details of how the work was done.
You paid Betty Oak to babysit your child and do light housework 4 days a week in your home. Betty followed your specific instructions about household and childcare duties. You provided the household equipment and supplies Betty needed to do her work. Betty is your household employee.
Household work is work done in or around your home. Some examples of workers who do household work are:
Babysitters Cooks Maids
Butlers Drivers Nannies
Caretakers Health aides Private nurses
Cleaning people Housekeepers Yard workers
If a worker is your employee, it doesn’t matter whether the work is full or part time or that you hired the worker through an agency or from a list provided by an agency or association. Also, it doesn’t matter if the wages paid are for work done hourly, daily, weekly, or by the job.
If you’re a home care service recipient receiving home care services through a program administered by a federal, state, or local government agency, and the person who provides your care is your household employee, you can ask the IRS to authorize an agent under section 3504 to report, file, and pay all federal employment taxes, including FUTA taxes, on your behalf. See Form 2678, Employer/Payer Appointment of Agent, for more information.
Workers who aren’t your employees.
Workers you get from an agency aren’t your employees if the agency is responsible for who does the work and how it is done. Self-employed workers are also not your employees. A worker is self-employed if only he or she can control how the work is done. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.
You made an agreement with Paul Brown to care for your lawn. Paul runs a lawn care business and offers his services to the general public. He hires his own helpers, instructs them how to do their jobs, and provides his own tools and supplies. Neither Paul nor his helpers are your employees.
What You Need to File Schedule H?
When filling out Schedule H make sure to include the following:
⦁ Your name, SSN, and Employer Identification Number (EIN)
⦁ Wages paid to your household employee(s)
⦁ Social Security and Medicare taxes withheld
⦁ FUTA tax liability
⦁ Income tax deducted from the employee’s wages (if applicable)
⦁ Your signature
⦁ The date
If you file an individual tax return with the IRS each year, you can attach Schedule H to Form 1040. If you don’t, you can file Schedule H on its own. Due to this process, Schedule H is typically going to be due by the tax filing deadline of April 15th. If it’s your first tax season as a household employer, make sure to give yourself plenty of time to get the important information together and file.
Household employment taxes
Account for household employment taxes, otherwise known as nanny taxes, on your Schedule H tax form. Household employment taxes typically include Social Security, Medicare, and federal unemployment taxes (FUTA tax).
Both you and your household employee must contribute to Social Security and Medicare taxes. Your household employee does not need to pay FUTA tax. You are responsible for paying FUTA taxes.
Your household employee must contribute 6.2% for Social Security tax and 1.45% for Medicare tax. Withhold your employee’s contribution from their wages and contribute an employer match. As a household employer, you must also contribute 6.2% for Social Security tax and 1.45% for Medicare tax.
If you’re required to pay state unemployment insurance (SUI or SUTA tax), you might be qualified for a reduced FUTA tax rate. There is a credit on the Schedule H form that allows you to reduce your FUTA tax rate. Check with the IRS for more information about the credit.
How Schedule H affects your 1040
Schedule H helps you calculate the three formulas needed to figure out how much employment tax you owe—which is based on the total amount of wages you paid out to household employees. Once you complete Schedule H and know the total amount of household employment tax for which you’re liable, enter the figure on the relevant line in the “Other Taxes” section of Schedule 2 for Form 1040 and combine it with your personal income tax bill for the year.
Have to pay taxes for household employees
When you pay cash wages of $2,300 or more in 2021 to any one household employee, you are subject to payroll taxes. While employees can decline federal income tax withholding, but will still be assessed on it, it’s important to note that employees don’t have a choice when it comes to payroll tax withholdings for Social Security and Medicare.
When it comes to withholding taxes, there are some key steps to 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 federal unemployment tax (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: If you pay wages subject to Federal Insurance Contributions Act (FICA) tax, FUTA tax, or if you withhold federal income tax from your employee’s wages, you’ll need to file a ⦁ Schedule H (Form 1040), Household Employment Taxes and attach it to your individual income tax return. We’ll talk more about Schedule H next.
Its best practice to hang onto important tax documents. A proper organization system can make it easier to file taxes, serve as a safe place for receipts for tax deductions, and help the event there is a problem with your taxes. When it comes to Schedule H, you should keep copies for at least four years. You’ll want to have a record of each payday, wages, and the taxes withheld.