General rule. An employee who performs household services, such as a maid, babysitter, gardener, or cook, in your home is your household employee. For each household employee to whom you pay $1,100 or more, you are required to withhold and pay social security and Medicare taxes.
If you are a sole proprietor and file Form 941-SS for business employees, you may include the wages paid to household employees on that form.
If you also must file Form 1040, U.S. Individual Income Tax Return, or Form 1040-SS, U.S. Self-Employment Tax Return--Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), or Puerto Rico, you may choose to report the wages paid to your household employees on that form. Attach Schedule H (Form 1040), Household Employment Taxes.
If you do not have business employees, but are required to file Form 1040, report the wages on Schedule H of that form.
If you do not have business employees, and are not required to file Form 1040, report the taxable wages paid to your household employees on Schedule H. File Schedule H as a separate return. Do not attach it to a Form 1040.
Exceptions. The $1,100 threshold applies to each household employee. Checks, money orders, etc., are treated as cash. The value of food, lodging, clothing, bus tokens, and other noncash items given to household employees is not subject to social security or Medicare taxes.
You do not have to pay social security or Medicare taxes on cash wages for household work in your home by your parent unless both of the following apply:
Social security and Medicare taxes do not apply to household work performed in your home by your child who is under age 21 or by your spouse.
Payments for household services are exempt from social security and Medicare taxes if performed by an individual who is under age 18 during any part of the calendar year, unless household work is the principal occupation of the employee. See Schedule H and Pub. 926, Household Employer's Tax Guide, for more information.
If you have a household employee, you may need to withhold and pay social security and Medicare taxes, or pay federal unemployment tax, or both. To find out, read Table 1 on page 3.
You do not need to withhold federal income tax from your household employee's wages. But if your employee asks you to withhold it, you can choose to do so. See Do You Need To Withhold Federal Income Tax? on page 5.
If you need to pay social security, Medicare, or federal unemployment tax or choose to withhold federal income tax, read Table 2, Household Employer's Checklist, on page 4 for an overview of things you may need to do.
Child and dependent care expenses. If your household employee cares for your dependent who is under age 13 or your spouse or dependent who is not capable of self care, so that you can work, you may be able to take an income tax credit of up to 30% of your expenses. If you can take the credit, you can include your share of the federal and state employment taxes you pay, as well as the employee's wages, in your qualifying expenses. For information about the credit, get Publication 503, Child and Dependent Care Expenses.
If you do not need to pay social security, Medicare, or federal unemployment tax and do not choose to withhold federal income tax, read State employment taxes, next. The rest of this publication does not apply to you.
State employment taxes. You should contact your state unemployment tax agency to find out whether you need to pay state unemployment tax for your household employee. For the address and phone number, see the list beginning on page 10 of this publication. You should also find out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance.
The Federal Insurance Contributions Act (FICA) provides for a federal system of old-age, survivors, disability, and hospital insurance for workers and their families. The social security tax pays for old-age, survivors, and disability benefits. The Medicare tax pays for hospital insurance.
Both you and your household employee may owe social security and Medicare taxes. The taxes for each of you are 7.65% (6.2% for social security tax and 1.45% for Medicare tax) of the employee's social security and Medicare wages.
You are responsible for payment of your employee's share of the taxes as well as your own. You can either withhold your employee's share from the employee's wages or pay it from your own funds. Pay the taxes as discussed under How Do You Make Tax Payments? on page 6. Also, see What Forms Must You File? on page 7.
Social security and Medicare wages. You figure social security and Medicare taxes on the social security and Medicare wages you pay your employee. If you pay your household employee cash wages of $1,100 or more in 1999, all cash wages you pay to that employee in 1999 (regardless of when the wages were earned) are social security and Medicare wages. If you pay the employee less than $1,100 in cash wages in 1999, none of the wages you pay the employee are social security and Medicare wages, and neither you nor your employee will owe social security or Medicare tax on those wages.
Wages not counted. Do not count wages you pay to any of the following individuals as social security and Medicare wages.
Cash wages. Cash wages include wages you pay with checks, money orders, etc. Cash wages do not include the value of food, lodging, clothing, and other noncash items you give your household employee. However, cash you give your employee in place of these items is included in cash wages.
If you reimburse the amount your employee pays to commute to your home by mass transit (bus, train, etc.), do not count the reimbursement (up to $65 per month) as wages.
Withholding the employee's share. You should withhold the employee's share of social security and Medicare taxes if you expect to pay your household employee cash wages of $1,100 or more in 1999. However, if you prefer to pay the employee's share yourself, see Not withholding the employee's share, next.
You may withhold the employee's share of the taxes even if you are not sure your employee's cash wages will be $1,100 or more in 1999. If you withhold the taxes but then actually pay the employee less than $1,100 in cash wages for the year, you should repay the employee.
Withhold 7.65% (6.2% for social security tax and 1.45% for Medicare tax) from each payment of social security and Medicare wages. You can use the table on page 12 to figure the proper amount to withhold. Instead of paying this amount to your employee, you will pay it to the IRS with a matching amount for your share of the taxes. Do not withhold any social security tax after your employee's social security wages for the year reach $72,600.
If you make an error by withholding too little, you should withhold additional taxes from a later payment. If you withhold too much, you should repay the employee.
Example. You hire a household employee (who is an unrelated individual over age 18) to care for your child and agree to pay cash wages of $100 every Friday. You expect to pay your employee $1,100 or more for the year. You should withhold $7.65 from each $100 wage payment and pay your employee the remaining $92.35. The $7.65 is the sum of $6.20 ($100 × 6.2%) for your employee's share of social security tax and $1.45 ($100 × 1.45%) for your employee's share of Medicare tax. You will match the $7.65 you withhold with $7.65 from your own funds when you pay the taxes.
Not withholding the employee's share. If you prefer to pay your employee's social security and Medicare taxes from your own funds, you do not have to withhold them from your employee's wages. The social security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. However, they are not counted as social security and Medicare wages or as federal unemployment (FUTA) wages.
Example. You hire a household employee (who is an unrelated individual over age 18) to care for your child and agree to pay cash wages of $100 every Friday. You expect to pay your employee $1,100 or more for the year. You decide to pay your employee's share of social security and Medicare taxes from your own funds. You pay your employee $100 every Friday without withholding any social security or Medicare taxes. For each wage payment you will pay $15.30 when you pay the taxes. This is $7.65 ($6.20 for social security tax plus $1.45 for Medicare tax) to cover your employee's share plus a matching $7.65 for your share. For income tax purposes, your employee's wages each payday are $107.65 ($100 plus the $7.65 that you will pay to cover your employee's share of social security and Medicare taxes).
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. Like most employers, you may owe both the federal unemployment tax (the FUTA tax) and a state unemployment tax. Or, you may owe only the FUTA tax or only the state unemployment tax. To find out whether you will owe state unemployment tax, contact your state's unemployment tax agency. See the list of state unemployment agencies in the Appendix on page 10 for the address.
The FUTA tax is 6.2% of your employee's FUTA wages. However, you may be able to take a credit of up to 5.4% against the FUTA tax, resulting in a net tax of 0.8%. But to do so, you must pay all the required contributions for 1999 to your state unemployment fund by April 17, 2000. The credit you can take for any contributions that you pay for 1999 after April 17, 2000, is limited to 90% of the credit that would have been allowable if the contributions were paid on or before April 17, 2000.
You must complete the following worksheet to figure the credit for late contributions.
Pay the tax as discussed under How Do You Make Tax Payments? on page 6. Also, see What Forms Must You File? on page 7.
Do not withhold the FUTA tax from your employee's wages. You must pay it from your own funds.
FUTA wages. You figure the FUTA tax on the FUTA wages you pay. If you pay cash wages to household employees totaling $1,000 or more in any calendar quarter of 1999, the first $7,000 of cash wages you pay to each household employee in 1999 and 2000 is FUTA wages. (A calendar quarter is January through March, April through June, July through September, or October through December.) If your employee's cash wages reach $7,000 during the year, do not figure the FUTA tax on any wages you pay that employee during the rest of the year. For a discussion of "cash wages," see page 3.
If you pay less than $1,000 cash wages in each calendar quarter of 1999, but you had a household employee in 1998, the cash wages you pay in 1999 may still be FUTA wages. They are FUTA wages if the cash wages you paid to household employees in any calendar quarter of 1998 totaled $1,000 or more.
Wages not counted. Do not count wages you pay to any of the following individuals as FUTA wages.
Example. You hire a household employee (who is not related to you) on January 1, 1999, and agree to pay cash wages of $200 every Friday. During January, February, and March you pay the employee cash wages of $2,600. Because you pay cash wages of $1,000 or more in a calendar quarter of 1999, the first $7,000 of cash wages you pay the employee (or any other employee) in 1999 or 2000 is FUTA wages. The FUTA wages you pay may also be subject to your state's unemployment tax.
During 1999, you pay your household employee cash wages of $10,400. You pay all the required contributions for 1999 to your state unemployment fund by April 17, 2000. Your FUTA tax for 1999 is $56 ($7,000 × 0.8%).