Household Employees

Are you paying an individual to come into your home to care for your children, clean your home, cook, perform personal services or provide care to an elderly or disabled relative in or around your home? Doing so has possible tax ramifications which can obligate you to pay and withhold Social Security,and Medicare (FICA) taxes and also to pay federal unemployment (FUTA) taxes.

If you have hired anyone to do the tasks aforementioned, and you control what work is done and how it's done, you have a household employee. It doesn't matter if the person works full or part time, was employed through an agency or any other group - the person is considered your employee by the IRS.

Who is Not Considered Your Employee

Any worker who is hired through an agency and the agency is responsible for who does the work and directs how it is done. Any self employed worker is not your employee. Guide: A self employed worker generally supplies his/her own tools.

Filing a Schedule H

Not required if the employee is your spouse, parent child under 21 or anyone under 18 if the service provided is not his/her principal occupation.

Required if you paid any one employee cash wages of $1,700 or more during the year, withheld federal income tax or paid cash wages of $1,000 or more during any calendar quarter to ALL employees. If you are not required to file a tax return (1040, etc.), you may file the Schedule H only by the April 15th deadline.

Withholding Tax

You, the employer, are not required to withhold income tax deductions. However, if the employee requests withholding and you agree, the employee is required to furnish you a completed Form W-4. Refer to IRS Pub 926 and Pub 15 for detailed information. The employee, if eligible, may also request advance payments of the Earned Income Credit by provding you with a Form W-5. These advance payments you pay reduce the Social Security, Medicare or withholding taxes you must pay. (Refer to Line 7 of the Schedule H.)

Secure an EIN (Employer Identification number)

This number can be obtained by submitting a completed Form SS-4 to the IRS. Never use your personal Social Security number for these filings.

W-2

You will need the EIN to prepare W-2's and the W-3 transmittal form for the IRS. The W-2's must be provided to each employee by February 1st. The W-3to the IRS must be filed by March 1st (March 31st if you file electronically).

FUTA (Federal Unemployment Taxes)

This involves a payment to the IRS (figured on Schedule H) for unemployment taxes. The rate for 2009 was 6.2%. You may be eligible for a state credit of up to 5.4% if all state unemployment has been paid.

Don't get caught for failure to file the Schedule H - it's important and cause you a lot of problems if overlooked.

It's not done until it's done right.