Do you employ someone to help around your house – perhaps a nanny, housekeeper, caregiver, or even a regular gardener? If so, congratulations, you're a household employer! And with that title comes the responsibility of reporting their wages to the IRS. Don't worry, it's not as complex as it might seem. This comprehensive guide will walk you through every step to ensure you're compliant with tax laws, avoid penalties, and properly report your household employee's wages.
Understanding Your Role as a Household Employer
Before we dive into the steps, let's clarify what defines a "household employee." The IRS considers someone a household employee if you control what work they do and how it's done. This is distinct from an independent contractor, who controls their own work and typically offers their services to the general public. If you paid a household employee cash wages of $2,700 or more in 2024 (this threshold changes annually, so always check the latest IRS guidelines, for 2025 it's $2,800) or withheld federal income tax from their wages, then you likely have tax obligations.
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| How Do I Report Household Employee Wages To The Irs |
Step 1: Are You a Household Employer? Let's Find Out!
Before you even think about forms and numbers, let's confirm your status. Think about the individual you're paying.
- Do you set their hours?
- Do you tell them what tasks to perform and how to do them?
- Do you provide the tools and equipment for their work (e.g., cleaning supplies, gardening tools)?
- Are they working primarily for you and not offering their services widely to others?
If you answered "yes" to most of these questions, chances are you have a household employee, not an independent contractor. Plumbers, electricians, and other service providers who work independently are not household employees. Misclassifying can lead to significant penalties, so it's crucial to get this right!
Step 2: Obtain an Employer Identification Number (EIN)
This is your first official step into the world of being an employer. An EIN is like a Social Security Number for your household (as an employer). You'll need it to identify yourself on all your tax forms.
Sub-heading: Why You Need an EIN
Even if you only have one household employee, an EIN is mandatory for reporting employment taxes. You cannot use your personal Social Security Number for this purpose.
Sub-heading: How to Apply for an EIN
Applying for an EIN is free and relatively quick.
- Online: This is the quickest method. You can apply directly on the IRS website. The online application is available Monday to Friday, 7:00 a.m. to 10:00 p.m. Eastern Time. You'll receive your EIN immediately upon approval.
- Fax: You can fax a completed Form SS-4, Application for Employer Identification Number, to the IRS. You'll typically receive your EIN back by fax within four business days.
- Mail: Mail a completed Form SS-4 to the IRS. This method takes the longest, usually four to six weeks.
Important Note: You can only apply for one EIN per responsible party per day. If you're a sole proprietor of a business, you'll still need a separate EIN for your household employment, unless you choose to include household payroll on your business tax returns (which can be more complicated).
Step 3: Understand and Calculate Household Employment Taxes
This is where the "nanny tax" comes into play. As a household employer, you're responsible for Social Security, Medicare, and Federal Unemployment Tax (FUTA). You may also need to withhold federal income tax if your employee requests it.
QuickTip: Read with curiosity — ask ‘why’ often.
Sub-heading: Social Security and Medicare Taxes (FICA)
These are often referred to as FICA taxes. Both you, the employer, and your employee contribute to these.
- Employer's Share: You'll pay 6.2% for Social Security and 1.45% for Medicare on your employee's cash wages.
- Employee's Share: You're required to withhold 6.2% for Social Security and 1.45% for Medicare from your employee's cash wages.
Important Thresholds: For 2025, Social Security and Medicare taxes apply if you pay a household employee cash wages of $2,800 or more. There is an annual wage base limit for Social Security tax ($176,100 for 2025), but no wage base limit for Medicare tax.
Sub-heading: Federal Unemployment Tax (FUTA)
FUTA tax is an employer-only tax. It helps fund unemployment compensation for workers who lose their jobs.
- Rate: The FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee during the calendar year. However, you can generally get a credit of up to 5.4% for amounts you pay into a state unemployment fund, making your effective FUTA rate often 0.6%.
- Threshold: You generally must pay FUTA tax if you paid total cash wages of $1,000 or more to all household employees in any calendar quarter of the current or previous year.
Sub-heading: Federal Income Tax Withholding
Unlike Social Security, Medicare, and FUTA, you are not required to withhold federal income tax from your household employee's wages. However, you should withhold it if your employee asks you to and you agree. If you do, your employee should complete a Form W-4, Employee's Withholding Certificate, to help you determine the correct amount to withhold.
Sub-heading: State Unemployment and Other State Taxes
Do not forget your state obligations! Most states have their own unemployment insurance (SUI) programs, and some also have state income tax withholding requirements for household employers. Check with your state's labor or revenue department for specific rules and registration requirements. You'll likely need a separate state employer identification number.
Step 4: Keep Meticulous Records
Accurate record-keeping is paramount for smooth tax reporting and to avoid any issues with the IRS.
Sub-heading: What Records to Keep
- Employee Information: Full name, address, Social Security Number.
- Wages Paid: Keep a clear record of all cash wages paid, including dates and amounts.
- Taxes Withheld: Document the amounts of Social Security, Medicare, and (if applicable) federal income tax withheld from each paycheck.
- Taxes Paid: Record all amounts you paid for your share of Social Security, Medicare, and FUTA taxes.
- Forms: Keep copies of all forms you file with the IRS (Form W-2, Schedule H, Form W-3, etc.) and any state forms.
- Form I-9: You are required to complete and keep a Form I-9, Employment Eligibility Verification, for each household employee to verify their authorization to work in the U.S.
Sub-heading: How Long to Keep Records
The IRS generally recommends keeping employment tax records for at least four years after the date the tax becomes due or is paid, whichever is later.
Step 5: Issue Form W-2 to Your Employee
Just like any other employer, you're responsible for providing your household employee with a Form W-2, Wage and Tax Statement. This form summarizes their wages and the taxes withheld for the year.
Reminder: Reading twice often makes things clearer.
Sub-heading: When to Issue Form W-2
You must furnish Form W-2 to your employee by January 31st of the year following the tax year. For example, for wages paid in 2024, you'd provide the W-2 by January 31, 2025.
Sub-heading: What Information Goes on Form W-2
Form W-2 will include:
- Your EIN and address.
- Your employee's Social Security Number and address.
- Total wages paid (Box 1).
- Federal income tax withheld (Box 2, if applicable).
- Social Security wages and tax withheld (Boxes 3 & 4).
- Medicare wages and tax withheld (Boxes 5 & 6).
- Any other state or local tax information.
Pro Tip: Many payroll services specializing in household employment can generate W-2s for you, simplifying this process significantly.
Step 6: File Form W-3 and Copy A of Form W-2 with the Social Security Administration (SSA)
Along with providing your employee with their W-2, you must also send copies to the Social Security Administration (SSA).
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Sub-heading: What is Form W-3?
Form W-3, Transmittal of Wage and Tax Statements, summarizes the totals from all the W-2 forms you're submitting. If you only have one household employee, your W-3 will simply summarize that single W-2.
Sub-heading: When and How to File
You must file Copy A of Form W-2 (the copy for the SSA) along with Form W-3 with the SSA by January 31st of the year following the tax year. You can file these electronically through the SSA's Business Services Online (BSO) portal, which is often the easiest and most recommended method.
Step 7: Report Household Employment Taxes on Schedule H (Form 1040)
This is the primary form for reporting your household employment taxes to the IRS. Schedule H is filed with your personal income tax return (Form 1040).
Sub-heading: Who Needs to File Schedule H?
You must file Schedule H if:
QuickTip: Reading carefully once is better than rushing twice.
- You paid any one household employee cash wages of $2,700 or more in 2024 ($2,800 in 2025).
- You paid total cash wages of $1,000 or more in any calendar quarter of the current or previous year to all household employees.
- You withheld federal income tax from your household employee's wages.
Sub-heading: Information Needed for Schedule H
You'll need to input:
- Your name, Social Security Number, and EIN.
- The total cash wages paid to your household employees.
- The amounts of Social Security, Medicare, and FUTA taxes owed.
- Any federal income tax withheld.
- Information on any state unemployment tax payments to potentially reduce your FUTA liability.
Sub-heading: How to File Schedule H
Schedule H is typically filed as an attachment to your Form 1040, U.S. Individual Income Tax Return. If you use tax preparation software, it will guide you through adding Schedule H. If you're not required to file Form 1040 (which is rare if you're paying household wages that meet the thresholds), you would file Schedule H by itself.
Sub-heading: Paying Your Household Employment Taxes
The total household employment taxes calculated on Schedule H will be added to your total tax liability on Form 1040. This means you will pay these taxes along with your regular income taxes. You may need to adjust your estimated tax payments (Form 1040-ES) or your own income tax withholding to account for this additional tax liability throughout the year to avoid underpayment penalties.
Step 8: Consider Using a Payroll Service
While this guide provides all the necessary steps, managing household payroll and taxes can be time-consuming and complex. Many household employers opt to use a dedicated payroll service that specializes in "nanny taxes."
Sub-heading: Benefits of a Payroll Service
- Expertise: They understand all the federal and state requirements.
- Time-Saving: They handle calculations, withholdings, and form preparation.
- Compliance: They help ensure you meet all deadlines and avoid penalties.
- Direct Deposit: Many services offer direct deposit for your employee.
- W-2 Generation: They will generate and send out W-2s and file W-3 for you.
Conclusion: Taking Control of Your Household Employee Tax Obligations
Reporting household employee wages to the IRS might seem like a daunting task at first, but by breaking it down into these manageable steps, you can confidently navigate the process. Remember, the key is proper classification, obtaining an EIN, diligent record-keeping, timely filing, and accurate calculation of taxes. By following this guide, you'll ensure you're a responsible household employer, providing your employee with the benefits and documentation they need, and staying in good standing with the IRS.
10 Related FAQ Questions
How to determine if someone is a household employee vs. an independent contractor?
A worker is a household employee if you control what work is done and how it's done. An independent contractor controls their own work, provides their own tools, and offers services to the general public.
How to apply for an Employer Identification Number (EIN)?
You can apply for an EIN online (recommended for immediate issuance), by fax, or by mail using Form SS-4 directly through the IRS website.
How to calculate Social Security and Medicare taxes for a household employee?
For 2025, you (the employer) pay 6.2% for Social Security and 1.45% for Medicare, and you withhold the same percentages from your employee's cash wages. These apply to wages of $2,800 or more.
QuickTip: Use the post as a quick reference later.
How to calculate Federal Unemployment Tax (FUTA) for household employees?
The FUTA tax rate is 6.0% on the first $7,000 of wages paid per employee. You can often claim a credit for state unemployment taxes paid, reducing your effective FUTA rate to 0.6%. This applies if you pay $1,000 or more in total cash wages in any calendar quarter.
How to know if I need to withhold federal income tax from my household employee's wages?
You are not required to withhold federal income tax from household employee wages. You should only do so if your employee requests it and provides you with a completed Form W-4.
How to issue Form W-2 to a household employee?
You must prepare Form W-2, Wage and Tax Statement, summarizing your employee's wages and withheld taxes, and provide it to them by January 31st of the following year.
How to file Form W-3 with the Social Security Administration (SSA)?
You must file Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all Forms W-2, with the SSA by January 31st. This can be done electronically through the SSA's Business Services Online.
How to report household employment taxes to the IRS?
You report household employment taxes by completing and attaching Schedule H (Form 1040), Household Employment Taxes, to your annual Form 1040, U.S. Individual Income Tax Return.
How to pay household employment taxes throughout the year?
The taxes reported on Schedule H are typically paid with your personal income tax return. You may need to adjust your estimated tax payments (Form 1040-ES) or income tax withholding to cover this additional liability throughout the year.
How to get help with household employee taxes?
You can consult IRS Publication 926, Household Employer's Tax Guide, visit the IRS website, or consider hiring a tax professional or a specialized household payroll service to help manage your obligations.
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