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Rev. date: 02/14/2012

Employment Taxes for Household Employees

Tax Topic 756
Household employees include housekeepers, maids, baby-sitters, gardeners, and others who work in or around your private residence as your employees. Repairmen, plumbers, contractors, and other business people who work for you as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but how they do it.

Social Security and Medicare Taxes (Federal Insurance Contributions Act – FICA)

If you pay a household employee cash wages of more than the amount specified by law in a tax year ($1,700 for 2009, 2010, and 2011), you generally must withhold social security and Medicare taxes from all cash wages you pay to that employee. (Cash wages include wages you pay by check or money order.) Unless you prefer to pay your employee's share of social security and Medicare taxes from your own funds, you should withhold 5.65 percent from each payment of cash wages made in 2011 (7.65 percent for 2009, and 2010). The specified dollar amount and percentages can be found under the topic "Do You Need To Pay Employment Taxes?" in Publication 926, Household Employer's Tax Guide. Pay the amount you withhold to the IRS with an additional 7.65 percent for your share of the taxes. If you pay your employee's share of social security and Medicare taxes from your own funds, the amounts you pay for your employee count as wages for purposes of the employees' income tax. However, they are not counted as social security and Medicare wages or as wages for Federal unemployment tax.
Do not withhold or pay social security and Medicare taxes from wages you pay to:
  1. Your spouse,
  2. Your child who is under age 21,
  3. Your parent, unless an exception is met; or
  4. An employee who is under age 18 at any time during the year, unless performing household work is the employee's principal occupation. If the employee is a student, providing household work is not considered to be his or her principal occupation.
See page 5 of Publication 926 for more information on these exceptions.

Federal Income Tax Withholding

You are not required to withhold Federal income tax from wages you pay to a household employee. However, if your employee asks you to withhold Federal income tax and you agree, you will need Form W-4, Employee's Withholding Allowance Certificate, and Publication 15, (Circular E), Employer's Tax Guide, which has tax withholding tables that are updated each year.

Form W-2, Wage and Tax Statement

If you must withhold and pay social security and Medicare taxes, or if you withhold Federal income tax, you will need to complete Form W-2, Wage and Tax Statement, for each employee. You will also need a Form W-3, Transmittal of Wage and Tax Statement. See “What Forms Must You File?” in Publication 926, Household Employer's Tax Guide, for information on when and where to furnish and file these forms. To complete Form W-2 you will need both an employer identification number (EIN) and your employees' social security numbers. If you do not already have an (EIN), you can apply for one using the online EIN application on the IRS website at IRS assistors will provide you with an EIN via the phone if you cannot use the Internet application. Call 800-829-4933 7:00 a.m. to 7:00 p.m., local time. You can also apply for an EIN by mailing or faxing a completed Form SS-4, Application for Employer Identification Number. Refer to Tax Topic 752Tax Topic 755 for further information.

Federal Unemployment Tax Act (FUTA)

If you paid cash wages to household employees totaling more than $1,000 in any calendar quarter during the calendar year or the prior year, you generally must pay Federal unemployment tax (FUTA tax) on the first $7,000 of cash wages you pay to each household employee. However, do not count wages paid to your spouse, your child who is under the age of 21, or your parent. The amounts you pay to these individuals are also not considered wages subject to FUTA tax. Generally, you can take a credit against your FUTA tax liability for amounts you paid into state unemployment funds. For 2010, Indiana, Michigan, and South Carolina are credit reduction states. A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is a "credit reduction state." If you paid wages that are subject to the unemployment compensation laws of a credit reduction state your FUTA tax credit may be reduced. See page H-5 in the Instructions 1040 (Schedule H) for more information. For specific dollar amounts and wages not counted, look under the heading "Do You Need To Pay Employment Taxes?" in Publication 926.

Schedule H, Household Employment Taxes

If you pay wages subject to FICA tax, FUTA tax, or if you withhold income tax from your employee's wages, you will also need to file a Form 1040 (Schedule H), Household Employment Taxes, with your individual income tax return, Form 1040, U.S. Individual Income Tax Return. If you are not required to file a Form 1040, you must still file Schedule H to report household employment taxes. However, a sole proprietor who must file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, and Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return, for business employees, or Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, for farm employees, may include household employee tax information on these forms instead of on Schedule H. If you choose to include the wages for a household employee on the forms shown above, be sure to pay any taxes due using the required depository method and by the date required based on the form. Additional information is available in the instructions for the form.
If you cannot or do not report the taxes on Forms 940, 941, 943, or 944, you can avoid owing tax with your Form 1040 if you pay enough Federal income tax before you file your Form 1040 to cover both the employment taxes for your household employee and your income tax. If you are employed, you can ask your employer to withhold more Federal income tax from your wages during the year. You can also make estimated tax payments to the IRS during the year or increase the payments you already make. Use Form 1040-ES to make estimated tax payments.
You may have to pay an estimated tax underpayment penalty if you do not pay your household employment taxes during the year. Refer to Tax Topic 306.
For more information, refer to Publication 926, Household Employer's Tax Guide.