It is tax season once again and you are getting ready to file or have your accountant prepare your personal return. If you employed a household worker last year – like a nanny, housekeeper, or senior caregiver – you may be wondering … what is Schedule H, and do I need to file it? Here is how to file Schedule H and everything you need to know including how to claim a tax credit for pandemic-related paid leave.
Please note: For GTM Payroll clients who added the year-end service to their payroll and tax plan, Schedule H will be provided for you.
What is Schedule H?
Schedule H form is where you report federal household employment taxes to the IRS and is filed with your personal tax return.
If you paid cash wages to a household employee and the wages were subject to Social Security, Medicare, and/or unemployment taxes, or if you withheld federal income tax, then you likely need to file Schedule H. The threshold for reporting FICA (Social Security and Medicare) taxes was $2,400 in 2022. Do not count wages you paid to your spouse, children under age 21, parent, or any employee under the age of 18 at any time in 2022.
Unemployment taxes need to be paid on wages of $1,000 or more in any calendar quarter. Do not count cash wages paid to your spouse, children under age 21, or a parent.
While you are not required to withhold federal income tax from a household employee’s wages, it is recommended that you do so that your employee is not stuck with their entire income tax obligation when they file their own return.
Before Completing Schedule H
Before you start filling out 1040 Schedule H, make sure you have all the information you need including:
- Employer Identification Number (EIN)
- Social Security taxes you paid to your household employee
- Federal income taxes withheld from your household employee
- Federal unemployment insurance taxes you paid
- Medicare taxes you paid and withheld from your household employee
Schedule H Household Employment Tax Instructions
Schedule H asks 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.
Complete the top section, which asks for your name, Social Security Number, and Employer Identification Number. Then answer questions A, B, and C and follow the instructions. Basically, these questions determine whether you need to complete the paid sick leave portion of Part 1. If you only withheld federal income tax and/or contributed unemployment taxes, you do not qualify for the paid leave tax credit as you did not pay Social Security taxes.
Schedule H Part I Instructions
This section details cash wages paid to your employee as well as Social Security, Medicare taxes, and federal income taxes. You will also calculate your tax credit for paid leave in this section of Schedule H.
FICA (Social Security and Medicare) 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.
Schedule H Part II Instructions
Here you will indicate your federal and state unemployment tax contributions.
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 will 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.
Schedule H Part III Instructions
This is where you total your household employment tax obligation after taking the paid leave tax credit.
Once you’ve made those calculations, you will enter the total amount of household employment taxes owed from Schedule H, line 26 on Schedule 2 (PDF), line 9. This will also be added to Form 1040 (or Form 1040-SR), line 23. If you remitted household employment taxes quarterly using Form 1040-ES, you can enter those payments on Form 1040 (or Form 1040-SR), line 26.
Remember, if a payroll service is remitting taxes on your behalf each quarter, you’ll count those as estimated tax payments.
Once you have finished Schedule H, you will file it with your personal tax return (Form 1040 or Form 140-SR).
Schedule H Record Requirements After Filing
You should keep copies of Schedule H for at least four years from the filing due date. You will 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).
Failing to File Schedule H
If you’re required to file Schedule H and fail to do so, you will likely:
- Receive notices from the IRS and/or Social Security Administration
- Face financial penalties
Tax Credit for Household Employers
To help cover the costs of paid leave during the pandemic, household employers can receive a dollar-for-dollar tax credit for providing qualified, pandemic-related leave to their employees. This credit is still available to household employers if, in 2022, you paid for leave taken after March 31, 2020, and before April 1, 2021. You’ll need to know:
- The amount of qualified sick and family leave wages
- Your employer share of social security tax on qualified sick and family leave wages
- Refundable and nonrefundable portions of credit for qualified sick and family leave wages
Paying Nanny Taxes Quarterly
It is a good idea to withhold taxes from your employee each pay period and remit both the employer and employee tax amount each quarter with Form 1040-ES. That way you and your employee are not 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.
GTM Can Help
GTM Payroll Services not only can manage your household payroll and taxes throughout the year but offers a year-end package that includes Schedule H as well as Form W-2 for your employee and Form W-3, which we will file with the Social Security Administration. That is a lot less paperwork, fewer potential tax mistakes, and more free time for you. To learn more, call us at (800) 929-9213 for a free consultation with a household employment expert. Or schedule time with us at your convenience.
For clients of GTM Payroll Services, 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. Contact our client service team at (800) 929-9213 to learn more.
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