| Instructions for Form 1040 Schedule H |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Here is a list of forms you need to complete:
-
Schedule H for figuring your household employment taxes.
-
Form W-2 for reporting wages paid to your employees.
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Form W-3 for sending Copy A of Form W-2 to the Social Security Administration.
For more information, see What Forms Must I File? in Pub. 926, Household Employer's Tax Guide.
No household employees in 2006?
If you did not have any household employees in 2006, you do not have to file Schedule H (Form 1040) for 2006.
What do I do after I fill in Schedule H?
Enter the taxes from Schedule H on the “ Household employment taxes” line of your Form 1040, 1040NR, 1040-SS, or 1041. You do this because
these taxes are added to your income taxes.
How do I file Schedule H?
File Schedule H with your Form 1040, 1040NR, 1040-SS, or 1041. If you are not filing a 2006 tax return, file Schedule
H by itself.
Do I make a separate payment?
No. You pay all the taxes to the United States Treasury, even the social security taxes.
When do I pay?
Most filers must pay by April 16, 2007.
How many copies of Form W-3 do I send to the Social Security Administration (SSA)?
Send one copy of Form W-3 with Copy A of Form(s) W-2 to the SSA, and keep one copy of Form W-3 for your records.
If you must file a 2006 Form W-2, Wage and Tax Statement, for any household employee, you must also send Form W-3, Transmittal
of Wage and Tax
Statement, with Copy A of Form(s) W-2 to the Social Security Administration.
Who Needs To File Schedule H?
You must file Schedule H (Form 1040) if you answer “Yes” to any of the questions on lines A, B, or C.
Only 8 lines for most people.
Depending on your answers, you may find that you only have to complete lines A, 1 through 4, 6, 8, and 9.
Did you have a household employee?
If you hired someone to do household work and you were able to control what work he or she did and how he or she did
it, you had a household
employee. This is true even if you gave the employee freedom of action. What matters is that you had the right to control
the details of how the work
was done.
Example.
You paid Betty Oak to babysit your child and do light housework 4 days a week in your home. Betty followed your specific instructions
about
household and child care duties. You provided the household equipment and supplies Betty needed to do her work. Betty is your
household employee.
Household work is work done in or around your home. Some examples of workers who do household work are:
If a worker is your employee, it does not matter whether the work is full or part-time or that you hired the worker through
an agency or from a
list provided by an agency or association. Also, it does not matter if the wages paid are for work done hourly, daily, weekly,
or by the job.
Note.
If a government agency files Schedule H for the worker, you do not need to file it.
Cash wages.
Cash wages include wages paid by checks, money orders, etc. Cash wages do not include the value of food, lodging,
clothing, or other noncash items
you give a household employee.
For 2006, you can generally give your employee transportation benefits such as transit passes worth up to $105 per month without
the benefits
counting as cash wages. However, the value of benefits over $105 a month is included as wages. See Transportation (Commuting)
Benefits in
Pub. 15-B, Employer's Tax Guide to Fringe Benefits, for more information.
Calendar quarter.
A calendar quarter is January through March, April through June, July through September, or October through December.
Workers who are not your employees.
Workers you get from an agency are not your employees if the agency is responsible for who does the work and how it
is done. Self-employed workers
are also not your employees. A worker is self-employed if only he or she can control how the work is done. A self-employed
worker usually provides his
or her own tools and offers services to the general public in an independent business.
Example.
You made an agreement with Paul Brown to care for your lawn. Paul runs a lawn care business and offers his services to the
general public. He hires
his own helpers and provides his own tools and supplies. Neither Paul nor his helpers are your employees.
For more information, see Pub. 926, Household Employer's Tax Guide.
Who Needs To File Form W-2 and Form W-3?
You must file Form W-2 for each household employee to whom you paid $1,500 or more of cash wages in 2006 that are subject
to social security and
Medicare taxes. To find out if the wages are subject to these taxes, see the instructions for Schedule H, lines 1 and 3, on
page H-4. If the wages are
not subject to these taxes but you withheld federal income tax from the wages of any household employee, you must file Form
W-2 for that employee.
If you file one or more Forms W-2, you must also file Form W-3.
Do You Have an Employer Identification Number (EIN)?
If you do not have an EIN, see Form SS-4, Application for Employer Identification Number. The instructions explain how you
can get an EIN
immediately over the internet, by telephone, or in about 4 weeks if you apply by mail. See How To Get Forms and Publications on page H-7
for details on how to get forms and publications including Form SS-4. Do not use a social security number in place of an EIN.
Can Your Employee Legally Work in the United States?
It is unlawful to employ an alien who cannot legally work in the United States. When you hire a household employee to work
for you on a regular
basis, you and the employee must each complete part of the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment
Eligibility
Verification. The Bureau was formerly called the Immigration and Naturalization Service, or INS. You must verify that the
employee is either a U.S.
citizen or an alien who can legally work and you must keep Form I-9 for your records. You can get the form and the USCIS Handbook
for Employers by
calling 1-800-870-3676, or by visiting the USCIS website at
www.uscis.gov.
What About State Employment Taxes?
If you employed a household employee in 2006, you probably have to pay contributions to your state unemployment fund for 2006.
To find out if you
do, contact your state unemployment tax agency right away. See page H-10 for some helpful contact information for each state.
You should also find out
if you need to pay or collect other state employment taxes or carry workers' compensation insurance.
See the Appendix in Pub. 926 for a complete listing of contact information for State unemployment tax agencies.
If you file Forms 1040, 1040NR, 1040-SS, or 1041 for 2006, remember to attach Schedule H to it. Mail your return by April
16, 2007, to the address
shown in your tax return booklet.
Exceptions.
If you get an extension of time to file your return, file it with Schedule H by the extended due date. If you are
a fiscal year filer, file your
return and Schedule H by the due date of your fiscal year return, including extensions.
Note.
If you are a calendar year taxpayer and have no household employees for 2006, you do not have to file Schedule H (Form 1040)
for 2006.
If you are not required to file a 2006 tax return (for example, because your income is below the amount that requires you
to file), you must file
Schedule H by April 16, 2007. Complete Schedule H and put it in an envelope with your check or money order. Do not send cash.
See the list of
addresses on page H-11. Mail your completed Schedule H and payment to the address listed for the place where you live. Make
your check or money order
payable to the “United States Treasury” for the total household employment taxes due. Enter your name, address, social security number, daytime
phone number, and “2006 Schedule H” on your check or money order. Household employers that are tax-exempt, such as churches, may file Schedule H
by itself.
By January 31, 2007, you must give Copies B, C, and 2 of Form W-2 to each employee. You will meet this requirement if the
form is properly
addressed, mailed, and postmarked no later than January 31, 2007.
By February 28, 2007, (April 2, 2007, if you file electronically) send Copy A of all Forms W-2 with Form W-3 to the Social
Security Administration
(SSA). Mail Copy A of all Forms W-2 with Form W-3 to:
Social Security Administration
Data Operations Center
Wilkes-Barre, PA 18769-0001
For certified mail, the ZIP code is 18769-0002. If you use a carrier other than the U.S. Postal Service, add “ATTN: W-2 Process,
1150 E. Mountain Dr.” to the address and change the ZIP code to “18702-7997.”
For additional information, visit the website for Social Security at
www.socialsecurity.gov/employer/whereto.htm.
Note.
Check with your state, city, or local tax department to find out if you must send Copy 1 of Form W-2.
Penalties.
You may have to pay a penalty if you do not give Forms W-2 to your employees or file Copy A of the forms with the
SSA. You may also have to pay a
penalty if you do not show your employee's social security number on Form W-2 or do not provide correct information on the
form.
How To Fill In Schedule H, Form W-2, and Form W-3
If you were notified that your household employee received payments from a state disability plan, see
page H-6.
Social security number.
Enter your social security number. (Form 1041 filers, do not enter a number in this space. But be sure to enter your
EIN in the space provided.)
Employer identification number (EIN).
An EIN is a nine-digit number assigned by the IRS. The digits are arranged as follows: 00-0000000. Enter your EIN
in the space provided. If you do
not have an EIN, see Do You Have an Employer Identification Number (EIN)? earlier. If you applied for an EIN but have not received it,
enter “ Applied For.” Do not use your social security number as an EIN.
Line A.
To figure the total cash wages you paid in 2006 to each household employee, do not count amounts paid to any of the
following individuals.
-
Your spouse.
-
Your child who was under age 21.
-
Your parent. (See Exception for parents below.)
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Your employee who was under age 18 at any time during 2006. If the employee was not a student, see Exception for employees under age
18 below.
Exception for parents.
Count the cash wages you paid your parent for work in or around your home if both 1 and 2 below apply.
-
Your child who lived with you was under age 18 or had a physical or mental condition that required the personal care of an
adult for at
least 4 continuous weeks in a calendar quarter.
-
You were divorced and not remarried, a widow or widower, or married to and living with a person whose physical or mental condition
prevented
him or her from caring for the child during that 4-week period.
Exception for employees under age 18.
Count the cash wages you paid to a person who was under age 18 and not a student if providing household services was
his or her principal
occupation.
Part I. Social Security, Medicare, and Income Taxes
Social security and Medicare taxes pay for retirement, disability, and health benefits for workers and their families. You
and your employees pay
these taxes in equal amounts.
For social security, the tax rate is 6.2% each for you and your employee. For Medicare, the rate is 1.45% each. For 2006,
the limit on wages
subject to social security tax is $94,200. There is no limit on wages subject to the Medicare tax. If you did not deduct the
employee's share from his
or her wages, you must pay the employee's share and your share (a total of 12.4% for social security and 2.9% for Medicare).
See Form W-2 and
Form W-3 on page H-5 for more information.
$1,500 test.
Any household employee to whom you paid cash wages of $1,500 or more in 2006 meets this test. The test applies to
cash wages paid in 2006
regardless of when the wages were earned. See Pub. 926 for more information. Or, visit the website for Social Security at
www.ssa.gov/pubs/10021.html.
Line 1.
Enter on line 1 the total of cash wages (see Cash wages on page H-2) paid in 2006 to each household employee who meets the $1,500 test,
explained above.
If you paid any household employee cash wages of more than $94,200 in 2006, include on line 1 only the first $94,200 of that
employee's cash wages.
Line 2.
Multiply the amount on line 1 by 12.4% (.124) and enter the result on line 2.
Line 3.
Enter on line 3 the total of cash wages (see Cash wages on page H-2) paid to each employee in 2006.
Line 4.
Multiply the amount on line 3 by 2.9% (.029) and enter the result on line 4.
Lines 5.
Enter on line 5 any federal income tax you withheld from the wages you paid your household employees in 2006.
Line 6.
Add lines 2, 4, and 5 and enter the result on line 6.
Line 7.
Enter on line 7, any advance EIC payments you made to your household employees in 2006.
Line 8.
Subtract the amount on line 7 from the amount on line 6 and enter the result on line 8.
Line 9.
Add the cash wages you paid to all your household employees for each calendar quarter of 2005 and 2006. Is the total
for any quarter in 2005 or
2006 $1,000 or more?
Yes. Complete Part II of Schedule H.
No. Follow the instructions in the chart below.
If you do not file any of the above forms, complete Part IV of Schedule H and follow the instructions under When and Where To File
on page H-3.
Part II. Federal Unemployment (FUTA) Tax
FUTA tax, with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their
jobs. Most employers
pay both a federal and state unemployment tax.
The FUTA tax rate is 6.2%. But see Credit for contributions paid to state below. Do not deduct the FUTA tax from your employee's wages.
You must pay it from your own funds. See page H-10 for a listing of some helpful contact information for each state.
Credit for contributions paid to state.
You may be able to take a credit of up to 5.4% against the FUTA tax, resulting in a net tax rate of 0.8%. But to do
so, you must pay all the
required contributions for 2006 to your state unemployment fund by April 16, 2007. Fiscal year filers must pay all required
contributions for 2006 by
the due date of their federal income tax returns (not including extensions).
Contributions are payments that a state requires you, as an employer, to make to its unemployment fund for the payment
of unemployment benefits.
However, contributions do not include:
-
Any payment such as FUTA tax deducted or deductible from your employees' pay;
-
Penalties, interest, or special administrative taxes not included in the contributions rate the state gave you; and
-
Voluntary contributions you paid to get a lower experience rate.
Lines 10 through 12.
Answer the questions on lines 10 through 12 to see if you should complete Section A or Section B of Part II.
Fiscal year filers.
If you paid all state unemployment contributions for 2006 by the due date of your return (not including extensions),
check the “ Yes” box on
line 11. Check the “ No” box if you did not pay all of your state contributions.
Line 13.
Enter the two-letter abbreviation of the name of the state (or the District of Columbia, Puerto Rico, or the Virgin
Islands) to which you paid
unemployment contributions.
Line 14.
Enter your state reporting number. If you do not have one, contact your state's unemployment tax agency. See the Appendix in Pub. 926
for your state's contact information.
Line 15.
Enter the total of contributions (defined earlier) you paid to your state unemployment fund for 2006. If you did not have to make
contributions because your state gave you a zero percent experience rate, enter “ 0% rate” on line 15.
Line 16.
Enter the total of cash wages (see Cash wages on page H-2) you paid in 2006 to each household employee, including employees paid less
than $1,000. However, do not include cash wages paid in 2006 to any of the following individuals.
If you paid any household employee more than $7,000 in 2006, include on line 16 only the first $7,000 of that employee's
cash wages.
Complete lines 18 through 25 only if you checked a “No” box on lines 10, 11, or 12.
Line 18.
Complete all columns that apply. If you do not, you will not get a credit. If you need more space, attach a statement
using the same format as line
18. Your state will provide the experience rate. If you do not know your rate, contact your state unemployment tax agency.
See page H-10 for a listing
of some helpful contact information for each state.
You must complete columns (a), (b), (c), and (i), even if you were not given an experience rate. If you were given
an experience rate of 5.4% or
higher, you must also complete columns (d) and (e). If you were given a rate of less than 5.4%, you must complete all columns.
If you were given a rate for only part of the year, or the rate changed during the year, you must complete a separate
line for each rate period.
Column (c).
Enter the taxable wages on which you must pay taxes to the unemployment fund of the state shown in column (a). If
your experience rate is zero
percent, enter the amount of wages you would have had to pay taxes on if that rate had not been granted.
Column (i).
Enter the total of contributions (defined earlier) you paid to the state unemployment fund for 2006 by April 16, 2007.
Fiscal year filers, enter
the total contributions you paid to the state unemployment fund for 2006 by the due date of your return (not including extensions).
If you are
claiming excess credits as payments of state unemployment contributions, attach a copy of the letter from your state.
Line 19.
Add the amounts in columns (h) and (i) separately and enter the totals in the spaces provided.
Line 20.
Add the amounts shown on line 19 and enter the total on line 20.
Line 24.
Enter the smaller of line 20 or line 23.
Line 26.
Enter the amount from line 8. If there is no entry on line 8, enter -0-.
Line 27.
Add the amounts on lines 17 and 26. (If you were required to complete Section B, add the amounts on lines 25 and 26 and enter the total
on line 27.)
Part III. Total Household Employment Taxes
Line 28.
Follow the instructions in the chart below.
If you do not file any of the above forms, complete Part IV of Schedule H and follow the instructions under When and Where To File
on page H-3.
If you file Form W-2, you must also file Form W-3.
You must report both cash and noncash wages in box 1, as well as tips and other compensation. The completed Forms W-2 and
W-3 in the example (see
page H-9) show how the entries are made.
Employee's portion of taxes paid by employer.
If you paid all of your employee's share of social security and Medicare taxes, without deducting them from the employee,
follow steps 1 through 3.
(See the example on pages H-7, H-8, and H-9.)
-
Enter the amount you paid on your employee's behalf in boxes 4 and 6 (do not include your share of these taxes).
-
Add the amounts in boxes 3, 4, and 6. (However, if box 5 is greater than box 3, then add the amounts in boxes 4, 5, and 6.)
-
Enter the total in box 1.
On Form W-3, put an “ X” in the “ Hshld. emp.” box located in box b, Kind of Payer.
The tax rates mentioned in the instructions for Parts I and II of Schedule H will not change. However, the cash wage threshold
that you pay to any
one household employee remains at $1,500 for 2007. The 2007 Employee Social Security and Medicare Tax Withholding Table is
in Pub. 926,
Household Employer's Tax Guide.
Limit on wages subject to social security tax.
The $94,200 amount in the instructions for Part I of Schedule H will increase to $97,500.
You may need to increase the federal income tax withheld from your pay, pension, annuity, etc. or pay estimated tax payments
to avoid an estimated
tax penalty based on your household employment taxes shown on line 27 of Schedule H (Form 1040). You may increase your federal
income tax withheld by
filing a new Form W-4, Employee's Withholding Allowance Certificate, or Form W-4P, Withholding Certificate for Pension or
Annuity Payments. Make
estimated tax payments by filing Form 1040-ES, Estimated Tax for Individuals. For more information, see Pub. 505, Tax Withholding
and Estimated Tax.
Estimated tax payments must be made during the tax year that the tax liability is incurred.
Exception.
You will not be penalized for failure to make estimated tax payments if both 1 and 2 below apply for the year.
-
You will not have federal income tax withheld from wages, pensions, or any other payments you receive.
-
Your income taxes, excluding your household employment taxes, would not be enough to require payment of estimated taxes.
You must keep copies of Schedule H and related Forms W-2, W-3, W-4, and W-5, Earned Income Credit Advance Payment Certificate,
for at least 4 years
after the due date for filing Schedule H or the date the taxes were paid, whichever is later. If you have to file Form W-2,
also keep a record of each
employee's name and social security number. Each payday, you should record the dates and amounts of:
-
Cash and noncash wage payments.
-
Any employee social security tax withheld.
-
Any employee Medicare tax withheld.
-
Any federal income tax withheld.
-
Any advance EIC payments you made.
What Is the Earned Income Credit (EIC)?
The EIC is a refundable tax credit for certain workers.
Which employees must I notify about the EIC?
You must notify your household employee about the EIC if you agreed to withhold federal income tax from the employee's
wages but did not do so
because the income tax withholding tables showed that no tax should be withheld.
Note.
You are encouraged to notify each employee whose wages for 2006 were less than $36,348 ($38,348 if married filing jointly)
that he or she may be
eligible for the EIC.
How and when must I notify my employees?
You must give the employee one of the following:
-
The official IRS Form W-2, that has the required information about the EIC on the back of Copy B.
-
A substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy B of the official IRS
Form
W-2.
-
Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC).
-
Your written statement with the same wording as Notice 797.
If you are not required to give the employee a Form W-2, you must provide the notification by February 7, 2007.
You must hand the notice directly to the employee or send it by First-Class Mail to the employee's last known address.
How do my employees claim the EIC?
Eligible employees claim the EIC on their 2006 tax returns.
How do my employees get advance EIC payments?
Eligible employees who have a qualifying child can get part of the credit with their pay during the year by giving
you a completed Form W-5. You
must include advance EIC payments with wages paid to these employees. For details, including tables that show you how to figure
the amount to add to
the employee's net pay, see Pub.15 (Circular E), Employer's Tax Guide.
Rules For Business Employers
Do not use Schedule H if you chose to report employment taxes for your household employees along with your other employees
on Form 941, Employer's
QUARTERLY Federal Tax Return, Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, or Form 944, Employer's
ANNUAL Federal Tax
Return. If you report this way, be sure to include your household employees' wages on your Form 940, Employer's Annual Federal
Unemployment (FUTA) Tax
Return.
State Disability Payments
Certain state disability plan payments to household employees are treated as wages subject to social security and Medicare
taxes. If your employee
received payments from a plan that withheld the employee's share of social security and Medicare taxes, include the payments
on lines 1 and 3 and
complete the rest of Part I through line 5. Add lines 2, 4, and 5. From that total, subtract the amount of these taxes withheld
by the state. Enter
the result on line 6. Also, enter “disability” and the amount subtracted on the dotted line next to line 6. See the notice issued by the state
for more details.
How to Get Forms and Publications
To get the IRS forms and publications mentioned in these instructions (including Notice 797), visit the IRS website at
www.irs.gov or call 1-800-TAX-FORM (1-800-829-3676).
Privacy Act and Paperwork Reduction Act Notice.
We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give
us the information.
We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless
the form displays a valid
OMB control number. Books or records relating to a form or instructions must be retained as long as their contents may become
material in the
administration of any Internal Revenue law.
Subtitle C, Employment Taxes, of the Internal Revenue Code imposes employment taxes on wages, including income tax withholding.
This form is used
to determine the amount of the taxes that you owe. Section 6011 requires you to provide the requested information if the tax
is applicable to you.
Section 6109 requires you to provide your employer identification number (EIN).
Generally, tax returns and return information are confidential, as required by section 6103. However, section 6103 allows
or requires the IRS to
disclose or give the information shown on your tax return to others as described in the Code. For example, we may disclose
your tax information to the
Department of Justice for civil and criminal litigation, and to cities, states, and the District of Columbia for use in administering
their tax laws.
We may also disclose this information to other countries under a tax treaty, to federal and state agencies to enforce federal
nontax criminal laws, or
to federal law enforcement and intelligence agencies to combat terrorism.
The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for individual
taxpayers
filing this form is approved under OMB control number 1545-0074 and is included in the estimates shown in the instructions
for their individual income
tax return. The estimated burden for all other taxpayers who file this form is shown below. Recordkeeping, 1hr., 38 min.; Learning
about the law or the form, 30 min.; Preparing the form, 54 min.; Copying, assembling, and sending the form to the IRS, 34
min.
If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would
be happy to hear from
you. You can write to: Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution
Ave. NW, IR-6406,
Washington, DC 20224. Do not send Schedule H (Form 1040) to this address. Instead, see When and Where to File on page H-3.
Completed Example of Schedule H, Form W-2, and Form W-3
On February 14, 2006, Susan Green hired Helen Maple to clean her house every Wednesday. Susan did not have a household employee
in 2005.
Susan paid Helen $50 every Wednesday for her day's work. Susan decided not to withhold Helen's share of the social security
and Medicare taxes from
the wages she paid Helen. Instead, she will pay Helen's share of these taxes from her own funds. Susan did not withhold federal
income tax because
Helen did not give her a Form W-4 to request withholding and no withholding is otherwise required. Susan also did not pay
Helen advance earned income
credit payments because Helen did not give her a Form W-5.
Helen was employed by Susan for the rest of the year (a total of 46 weeks). The following is some of the information Susan
will need to complete
Schedule H, Form W-2, and Form W-3.
State Unemployment Tax Agencies
See the Appendix in Pub. 926, Household Employer's Tax Guide for complete contact information.
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