All About Schedule H (Form 1040), Household Employment Taxes

You’re likely to hire help at some point for tasks around the house, which makes you an employer. Consequently, you need to pay household employees’ payroll taxes. It can be challenging for many people to hire employees within their homes for the first time. 

a nanny who works as a Household employee In & Near Bronx, NY

SCL Tax Services in & near Bronx, NY, is here to give the tax help you need. To avoid costly fines and stay in compliance with payroll tax laws, household employers must know what they need to know.

Following are some tips to help you meet the requirements of your household workers:

  • Who is a household employee?
  • What is Schedule H?
  • How to file Schedule H?
  • What happens if you fail to file Schedule H?

 

Who is a Household Employee?

Household employees come in many forms. The most common are nannies, but others include:

  • Housekeepers
  • Private teachers or tutors
  • Landscapers or Gardeners
  • Private nurses or Caregivers
  • Personal assistants
  • Personal chef

There are some exceptions for nannies and babysitters. Babysitters or nannies are not considered household employees if they are:

  • Your spouse
  • parent
  • Your child under the age of 21
  • Anyone under the age of 18

 

What is Schedule H?

The IRS requires you to report household employment taxes on Schedule H with your personal tax return.

When you paid cash wages to a household employee and those wages were subject to Medicare, Social Security, and/or unemployment taxes, or you withheld federal income tax, you might need to file Schedule H. The FICA threshold (Social Security and Medicare) taxes was $2,300 in the tax year 2021. Pay no wages to your spouse, children under the age of 21, parents, or employees under the age of 18 at any time this year.

If you earn $1,000 or more in a calendar quarter, you will need to pay unemployment taxes. Do not include cash wages received from your spouse, children under 21, or parents.

It is not required for household employees to withhold federal income tax from their wages, but it is highly recommended to do so, so the employee is not stuck with their entire tax bill when they file their own return.

If you think this is too much, consider working with tax professionals to avoid facing issues with IRS. Bronx tax services is at your service, contact our tax office and get all the tax help you need. 

 

How to file Schedule H?

In the case of pandemic-related paid leave, there is an additional wrinkle when filing your tax return. If you granted your employee paid leave for qualified reasons due to the pandemic, including getting vaccinated and recovering from its side effects, you might be able to claim a dollar-for-dollar credit on Social Security taxes. This leave was optional through September 30, 2021. Schedule H will reconcile the paid leave provisions.

Before filing Schedule H

If you are filling out Schedule H, make sure you have all the information you need, including:

  • Employer Identification Number (EIN)
  • The total amount you paid your household employees
  • Federal income tax withheld
  • Contributions to state unemployment insurance
  • Paid sick and family leave wages to employees
  • Social Security taxes paid by the employer on those qualified leaves

Completing Schedule H

In Schedule H, you are asked a series of questions in order to determine whether you are subject to household employment taxes. You will enter your employee’s wages and calculate the amount of Social Security and Medicare taxes owed.

You need to enter your name, Social Security Number, and Employer Identification Number in the top section. After that, you need to respond to questions A, B, and C. Based on your answers, you will either complete or not complete the paid sick leave portion of Part 1. You do not qualify for the paid leave tax credit if you only withheld federal income taxes and/or contributed unemployment taxes and did not pay Social Security taxes.

Now we go into detail and see how you should file Schedule H. Keep in mind that making a mistake could lead to issues and possible penalties, so if you still feel this is overwhelming, consider working with tax professionals

Part I of Schedule H

In this section, you will find details about the cash wages paid to your employees, as well as Social Security, Medicare, and federal income taxes. Also included here is the calculation of your paid leave tax credit.

There is a 15.3 percent FICA (Social Security and Medicare) tax on cash wages. Employees and employers each contribute 7.65 percent. 6.2 percent of this goes to Social Security and 1.45 percent to Medicare.

Part II of Schedule H

Here in part II, you will indicate your federal and state unemployment tax contributions.

FUTA is 6% on the first $7,000 in cash wages. Employers are responsible for paying this tax.

Taxes on Social Security vary from state to state and are paid by employers as well. In the case of Alaska, New Jersey, and Pennsylvania, state unemployment taxes are withheld from employees’ paychecks. It is your responsibility to withhold and remit this tax from your employee’s salary.

If you pay SUI, you might be able to reduce your FUTA debt. The credit score will be determined when you complete Schedule H.

Part III of Schedule H

In this section, you add the paid leave tax credit to your household employment tax liability. Once you have made those calculations, you should enter the total amount of the household employment taxes owed from your Schedule H, line 26 on Schedule 2 (PDF), line 9. This will also appear on line 23 of Form 1040 (or Form 1040-SR). Line 26 of Form 1040 (or Form 1040-SR) can be used to enter quarterly household employment tax payments made on Form 1040-ES.

If a payroll service remits taxes on your behalf every quarter, you should count those as estimated tax payments.

Whether you are entitled to tax credits for pandemic-related paid leave, include the amounts on Schedule 3.

If you have completed Schedule H, you will file it with your personal tax return (Form 1040 or Form 140-SR).

What happens if you fail to file Schedule H?

If you fail to file Schedule H, you are likely to:

  • Receive notices from the Social Security Administration and/or IRS
  • Face financial penalties
  • Need to amend your personal tax return

COVID-19 paid leave for household employees

During COVID-19, household employees were eligible for certain benefits, including:

  • A maximum of two weeks of sick leave available (full pay for self, 1/3 pay for family care) in case of illness, quarantine, or school closure
  • A maximum of 12 weeks of FMLA (Family and Medical Leave Act) leave for school closures (10 days unpaid and then up to 10 weeks with 2/3 pay).

Form 1040 for Bronx, NY

Need a hand?

Being an employee comes with responsibilities, and one of the most important ones is that you have to pay taxes. SCL Tax Services in & near Bronx, NY, not only can handle your household taxes but also provides all the tax help you need as a household employer. Contact our tax office in Bronx, NY to start talking with one of our tax professionals. Call now at 347-305-4348!

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