It’s tax season and you’re getting prepared or gathering documents and information to file, or have your accountant prepare, your personal return.
You also hired a household employee in the past year and you’re wondering … what is Schedule H and do I need to file it?
We’ll break down everything you need to know about Schedule H including whether you need to file one and how to complete the form.
Note: If you’re filing your 2020 tax return, read important information about an updated Schedule H for this tax season that reconciles pandemic-related paid leave and tax credits offered through the Families First Coronavirus Response Act.
What is Schedule H?
Schedule H (Household Employment Taxes) is where you report household employment taxes to the IRS. If you paid cash wages to a household employee and the wages were subject to Social Security, Medicare, and/or FUTA taxes, or if you withheld federal income tax, then you likely need to file Schedule H.
Do I have a household employee?
If you hired someone to work in your home and you control the employment, then that worker is your household employee and you may need to file Schedule H.
Some examples of household employees include:
- In-home senior caregivers and companions
- Personal assistants
- Personal chef
People you pay to perform work at your home – like plumbers and electricians – aren’t considered your employees because you don’t control the work they do and how it is done. With a worker like a nanny, for example, you control when they come to work, how they should do their job, and the tools and equipment used to perform their job. Learn more about classifying household employees.
Do I need to file Schedule H?
You’ll need to file Schedule H if at least one of the following is true:
- You paid a household employee cash wages of $2,100 or more in the 2019 calendar year (this threshold increases to $2,200 in 2020).
- You paid total cash wages of $1,000 or more in any calendar quarter to all your household employees
- You withheld federal income tax from a household employee’s wages
While you’re not required to withhold federal income tax from a household employee’s wages, it’s recommended that you do so your employee is not stuck with their entire income tax obligation when they file their own return.
Do not count cash wages paid to your:
- Child under age 21
What is reported on Schedule H?
You’ll report the total amount owed in household employment taxes on Schedule H. These include Social Security and Medicare (FICA), federal unemployment (FUTA), and state unemployment (SUI).
FICA taxes are 15.3 percent of cash wages. Both you and your employee contribute 7.65 percent. This breaks down to 6.2 percent for Social Security and 1.45 percent for Medicare.
FUTA is six percent on the first $7,000 of cash wages. This is paid by the employer only.
SUI taxes vary by state and are also paid by the employer. However, employees in three states (Alaska, New Jersey, and Pennsylvania) are subject to state unemployment tax withholding. You’ll withhold this tax from your employee’s wages and remit it to the state.
If you pay SUI, you may be able to reduce the amount you owe for FUTA. Your credit will be determined when you complete Schedule H.
What information do I need when completing Schedule H?
Whether you’re using tax filing software or completing Schedule H manually, you’ll want to be prepared with the following information:
- Your name, Social Security Number, and Employer Identification Number (EIN)
- Total wages paid to your household employees
- Federal income tax withheld
- State unemployment contributions
The form will ask you a series of questions to determine whether you are subject to household employment taxes. If you are, you’ll enter your employee’s wages and calculate what is owed in Social Security and Medicare taxes.
If you paid your employee $200,000 or more, which may be unlikely for a household employee, they are subject to Additional Medicare Tax withholding.
You’ll then enter the amount of federal income tax withheld, if any.
The next part of Schedule H calculates what is owed in FUTA and SUI taxes.
Once you’ve made those calculations, you’ll enter the total amount of household employment taxes owed from Schedule H, line 26 on Schedule 2, line 7a. This will also be added to Form 1040 (or Form 1040-SR), line 15.
Once you’ve finished Schedule H, you’ll file it with your personal tax return (Form 1040 or Form 140-SR).
Where do I enter my estimated tax payments?
If you’ve remitting household employment taxes quarterly using Form 1040-ES, you can enter those payments on Schedule 3, line 8 and on Form 1040 (or Form 1040-SR), line 18d.
Remember, if a payroll service is remitting taxes on your behalf each quarter, you’ll count those as estimated tax payments on Schedule 3.
It’s a good idea to withhold taxes each pay period and remit both the employer and employee tax amount each quarter with Form 1040-ES. That way you and your employee aren’t stuck with your entire tax obligation when you file your personal returns.
Also, since household employment taxes are added to your personal tax obligation, you may have to pay an estimated tax underpayment penalty if you don’t pay your household employment taxes during the year. Another option is to have additional federal income tax withheld from your wages during the year.
What if my accountant does my taxes?
Your accountant should be made aware of any household employment as soon as possible (ideally at the time of hire) and certainly well in advance of working on your personal tax return. Your accountant should know:
- Name, address, and Social Security numbers of your employee
- Total cash wages paid to your employee
- Employee portion of FICA taxes that have been withheld and remitted
- Employer portion of FICA taxes that have been remitted
- Federal income taxes withheld
- Federal and state unemployment taxes paid
Again, if you’re using a payroll service that has been remitting taxes on your behalf, let your accountant know and provide them with those amounts.
How long should I keep Schedule H?
You should keep copies of Schedule H for at least four years from the filing due date. You’ll also want to keep pay records including pay dates, wage amounts (cash and non-cash), FICA taxes withheld, and federal income taxes withheld (if any).
What if I don’t file Schedule H?
If you’re required to file Schedule H and fail to do so, you’ll likely:
- Receive notices from the IRS and/or Social Security Administration
- Face financial penalties
- Need to amend your personal tax return
Is there an easier way?
We’re glad you asked. Clients of GTM Payroll Services can sign up for a year-end service that will take care of Form W-2, Form W-3, and Schedule H. Once Schedule H is complete, you can download it from your online client portal and file it with your personal tax return or provide it to your accountant if they are preparing a return for you. You can also provide online account access to your accountant and they can download all necessary forms. Throughout the year, GTM will pay your employee by direct deposit, calculate all taxes for withholding, and remit your household employment taxes on a quarterly basis. It’s the no-risk, no-hassle, no-worry way to handle household employment payroll and taxes. Want to learn more? Call (800) 929-9213 for a complimentary, no-obligation consultation.
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“Taxes” by Got Credit is licensed under CC BY 2.0