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The Nanny Tax

People who paid domestic help more than $1,400 will need to file Schedule H, "Household Employment Taxes," with their (Federal) income tax returns.

  • If the employer has no 1040 filing requirement, Schedule H must be filed alone.

  • If you paid someone to work in or around your home, you may owe employment taxes. Employment taxes are social security (12.4%), Medicare (2.9%), withheld Federal income, and Federal unemployment (0.8%) (FUTA) taxes. Employment taxes on wages paid to household workers are now attached to your individual Federal income tax return (Form 1040) and reported on Form H (Household Employment Taxes). The Form H replaces Form 942 for domestic employees previously required to be filed separately each quarter.

  • A household employee is any person who does household work if you can control what will be done, when it will be done, and how it will be done. Household work includes work done in or around your home by baby sitters, nannies, health aides, maids, yard workers, and similar domestic workers. If you had a household employee during the year and any of the following three conditions apply, you may owe employment taxes on the cash wages (which include payments by check or money order.) that you paid each employee. The three conditions are:

  1. You paid any one household employee cash wages of $1,400 or more.

  2. You paid total cash wages of $1,000 or more in any calendar quarter to household employees. A calendar quarter is January through March, April through June, July through September, or October through December.

  3. You withheld Federal income tax during the year at the request of any household employee. Income tax withholding is required only if the employer and employee agree.

  • Payment of employees' withholdings during the year should be sent with the employer's Schedule H.

  • Employers have until January 31st to issue household employees Form W-2 for the previous year’s wages and withholding.

  • Household employers need to include their employer identification number (EIN) on Schedule H. They can request an EIN by filing Form SS-4, "Application for Employer Identification Number."

  • Each year, employees' withholding must be paid over by the employer through 1040ES estimated tax payments.

  • If you pay household employees less than $1,400 during a calendar year, household employers are not liable for FICA taxes.

  • Also, cash wages paid for domestic service in a private home by an individual under 18 during any part of the year are exempt from FICA taxes unless the domestic service is the principal occupation of the employee.

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