Schedule H (Form 1040): Household Employment Taxes

Schedule H (Form 1040): Understanding Household Employment Taxes

When you employ someone in your home—such as a nanny, housekeeper, or caregiver—it’s essential to understand your tax obligations as an employer. Schedule H (Form 1040) is the IRS form used to report and pay household employment taxes for individuals who hire domestic workers. This form ensures that you are complying with tax laws related to household employees, covering important taxes like Social Security, Medicare, and federal unemployment taxes.

In this guide, we will walk you through the purpose of Schedule H, who needs to file it, what taxes are involved, and how to complete it accurately.

What is Schedule H (Form 1040)?

Schedule H (Form 1040) is a form used by individuals who hire household employees to report the employment taxes they owe to the IRS. These taxes include:

1. Social Security and Medicare Taxes (FICA): Both you and your household employee are responsible for contributing to Social Security and Medicare through FICA (Federal Insurance Contributions Act) taxes. As an employer, you must withhold your employee’s share and pay the employer’s share as well.

2. Federal Unemployment Tax (FUTA): As an employer, you may also be responsible for paying federal unemployment taxes. FUTA helps provide unemployment benefits to workers who lose their job through no fault of their own.

Filing Schedule H ensures that you are in compliance with these tax obligations and that your household employee receives the necessary credits for Social Security and Medicare.

Who Needs to File Schedule H?

You are required to file Schedule H if you have household employees and meet any of the following criteria:

1. You Paid an Employee $2,600 or More in a Year: If you paid a household employee (such as a nanny, housekeeper, caregiver, or personal assistant) $2,600 or more in a year, you must file Schedule H. This amount is for the 2023 tax year and may change in future years due to inflation adjustments.

2. You Withheld Social Security and Medicare Taxes: If you withheld Social Security or Medicare taxes from your household employee’s wages, you must file Schedule H. This includes the scenario where you pay both the employee’s and employer’s share of FICA taxes.

3. You Paid Federal Unemployment Tax (FUTA): If you paid any amount in wages to a household employee and those wages are subject to FUTA tax, you will need to file Schedule H.

4. You Hired More Than One Household Employee: If you employed multiple household workers who meet the criteria for Schedule H, you must file the form for each of them individually.

Types of Household Employees

Household employees are workers who provide services in or around your home on a regular basis. Examples include:

• Nannies and babysitters
• Housekeepers or maids
• Caregivers for elderly or disabled individuals
• Private nurses
• Gardeners or groundskeepers
• Home health aides
• Personal assistants

The key factor is whether the worker is classified as an employee (working under your direction and control) or as an independent contractor (working on their own terms). If the worker is an employee, you must file Schedule H.

What Taxes Are Included on Schedule H?

There are several types of taxes that must be reported and paid when filing Schedule H:

1. Social Security and Medicare Taxes (FICA):

   • Employee’s share: You must withhold 6.2% of the employee’s wages for Social Security and 1.45% for Medicare.
   • Employer’s share: You must also contribute the same amounts as the employer, 6.2% for Social Security and 1.45% for Medicare.

   The total combined FICA tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare). However, if you pay your employee more than $200,000 in a year, there is an additional 0.9% Medicare tax for wages above this threshold (this is the employee’s responsibility to pay).

2. Federal Unemployment Tax (FUTA):

   • As the employer, you are responsible for paying FUTA tax on the wages you pay your household employee. The standard FUTA rate is 6%, but you can receive a credit of up to 5.4% if you are up-to-date on state unemployment tax payments, reducing the effective rate to 0.6%.

   • FUTA tax applies only to the first $7,000 of wages paid to a household employee.

3. Additional Medicare Tax:

   • For employees earning more than $200,000 in wages, the additional 0.9% Medicare tax applies. This tax is solely the responsibility of the employee, but as the employer, you are required to withhold it.

How to Fill Out Schedule H

Schedule H is divided into various sections where you will report the necessary details about your household employees and the taxes owed. Here’s an overview of the key parts:

1. Part I – Wages Paid to Household Employees:

   • List the total wages you paid to your household employees during the year. If you employed more than one worker, report the wages separately for each employee.

2. Part II – Tax Calculation:

   • This section is where you calculate the Social Security, Medicare, and FUTA taxes based on the wages you paid.
   • You’ll include the total amount of FICA taxes (both the employee’s and employer’s share) and any applicable FUTA taxes.

3. Part III – Credit for State Unemployment Tax:

   • If you paid state unemployment tax, you may be eligible for a credit toward your FUTA liability. You’ll report that amount in this section.

4. Part IV – Additional Medicare Tax:

   • If your employee earned more than $200,000 in wages, this section ensures that the additional 0.9% Medicare tax is withheld and reported.

Once completed, the total tax owed is transferred to your Form 1040, where it will be included in your total tax payment.

Key Considerations When Filing Schedule H

1. Know the Wage Threshold: If you pay a household employee less than $2,600 in a year, you are not required to file Schedule H. However, if you cross this threshold, you must file and pay the required taxes.

2. Accurate Recordkeeping: It’s essential to keep records of wages paid, taxes withheld, and other relevant information. This will help ensure that you are compliant with IRS requirements and ready in case of an audit.

3. Filing Deadline: Schedule H is filed alongside your regular Form 1040. Ensure that it is submitted by the tax filing deadline (typically April 15th) to avoid penalties.

4. State Requirements: Some states may have their own tax rules regarding household employment taxes. Be sure to check your state’s requirements for additional taxes or reporting obligations.

Conclusion

Schedule H (Form 1040) is a vital form for individuals who employ household workers. By correctly reporting and paying household employment taxes, you ensure that you meet your tax obligations and that your employees receive the necessary benefits for Social Security and Medicare. Accurate reporting, good recordkeeping, and timely filing are essential for avoiding penalties and staying compliant with IRS rules. If you’re unsure about how to complete Schedule H, consulting a tax professional or accountant with expertise in household employment taxes can be beneficial.