Introduction
If you hire a nanny, housekeeper, caregiver, or gardener, you may be responsible for household employment taxes. These taxes ensure compliance with Social Security, Medicare, and unemployment tax rules.
This guide explains how to report wages for household employees, determine tax responsibilities, and ensure IRS compliance.
Tax Code References for Household Employee Wages
- IRC § 3121 – Defines employment tax obligations for household employees.
- IRC § 3402 – Requires employers to withhold income tax if applicable.
- IRC § 3510 – Establishes tax payment requirements for household employers.
- IRC § 3301 – Covers Federal Unemployment Tax Act (FUTA) obligations.
Relevant IRS Forms for Household Employment Taxes
- Schedule H (Form 1040) – Reports household employment taxes.
- Form W-2 – Provided to the household employee to report wages.
- Form W-3 – Used to submit W-2s to the Social Security Administration (SSA).
- Form 1040-ES – Used to make estimated tax payments for household employment taxes.
- Form SS-4 – Used to obtain an Employer Identification Number (EIN) for household employment.
Who Qualifies as a Household Employee?
- A household employee is someone you hire to perform domestic work and you control how the work is done.
- Examples include:
- Nannies and babysitters
- Housekeepers and maids
- Gardeners and landscapers
- Personal caregivers for elderly or disabled individuals
Who Does NOT Qualify?
You are not a household employer if:
- The worker controls how the job is done (they are an independent contractor).
- You hire a self-employed person or company for services.
Step-by-Step Guide to Reporting Household Employee Wages
Step 1: Determine If You Are a Household Employer
- If you pay someone $2,700 or more in 2024, you must report their wages and pay Social Security and Medicare taxes.
Step 2: Obtain an Employer Identification Number (EIN)
- Apply for an EIN using Form SS-4 before paying wages.
Step 3: Withhold Social Security and Medicare Taxes
- Withhold 7.65% of wages (6.2% for Social Security + 1.45% for Medicare).
- Pay a matching 7.65% as the employer’s share.
Step 4: Report and Pay Federal Unemployment Tax (FUTA)
- If you pay $1,000 or more in wages in any quarter, you must pay 6% FUTA tax on the first $7,000 of wages.
Step 5: Provide Form W-2 to Your Employee
- Issue Form W-2 by January 31 to report wages.
- Submit Form W-3 to the Social Security Administration (SSA).
Step 6: File Schedule H with Your Tax Return
- Attach Schedule H to Form 1040 to report and pay household employment taxes.
6. Example Scenarios for Household Employment Tax Filing
Example 1: Nanny Hired for Full-Time Childcare
- Samantha hired a nanny and paid her $30,000 in 2024.
- Samantha withheld Social Security and Medicare taxes and filed Schedule H with Form 1040.
- She issued Form W-2 to the nanny and paid FUTA taxes.
Example 2: Part-Time Housekeeper Below the Wage Threshold
- John hired a housekeeper and paid her $2,500 for the year.
- Since the payment was below the $2,700 threshold, John was not required to withhold payroll taxes.
Example 3: Elderly Caregiver Paid Cash Wages Without Reporting
- Tom hired a caregiver for his elderly father, paying her $20,000 in cash.
- Since he did not withhold taxes, Tom was liable for back taxes, penalties, and interest when audited.
Common Mistakes to Avoid
- Failing to withhold Social Security and Medicare taxes – The IRS may require back payments with penalties.
- Paying under the table – Paying cash wages without proper tax withholding violates tax laws.
- Incorrectly classifying employees as independent contractors – Household employees are not self-employed.
IRS Compliance Requirements
- Report household employee wages on Schedule H.
- Issue Form W-2 to employees and file Form W-3 with the SSA.
- Pay Social Security, Medicare, and FUTA taxes.
- Maintain payroll records for at least 4 years.
Conclusion
If you hire nannies, housekeepers, or caregivers, you may be a household employer responsible for paying employment taxes. Ensuring proper tax reporting and withholding prevents IRS penalties.
For expert tax guidance on household employee wages, consult Anshul Goyal, CPA EA FCA, a Certified Public Accountant and IRS compliance expert.
FAQs
1. Do I have to report wages for a part-time babysitter?
If you pay a babysitter less than $2,700 in 2024, you do not need to withhold taxes.
2. Can I classify my nanny as an independent contractor?
No, household workers are employees, not independent contractors. Misclassifying them can result in IRS penalties.
3. What if I pay my household employee in cash?
Cash wages must still be reported and are subject to Social Security, Medicare, and FUTA taxes.
4. Do I need to provide a household employee with a Form W-2?
Yes, you must issue Form W-2 by January 31 if you pay $2,700 or more in wages.
5. How do I pay household employment taxes?
File Schedule H with Form 1040 and submit estimated tax payments using Form 1040-ES.
About Our CPA
Anshul Goyal, CPA EA FCA, is a Certified Public Accountant and IRS compliance expert specializing in household employment taxes, payroll reporting, and IRS compliance.
For personalized tax assistance, schedule a consultation with Anshul Goyal, CPA EA FCA today.