You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.

When you hire a household employee to work for you on a regular basis, you and the employee must complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. No later than the first day of work, the employee must complete the employee section of the form by providing certain required information and attesting to his or her current work eligibility status in the United States. You must complete the employer section by examining documents presented by the employee as evidence of his or her identity and employment eligibility. Acceptable documents to establish identity and employment eligibility are listed on Form I-9. You should keep the completed Form I-9 in your own records. Do not submit it to the IRS, the USCIS, or any other government or other entity. The form must be kept available for review upon notice by an authorized U.S. Government official.

Two copies of Form I-9 are contained in the Handbook for Employers (Form M-274) published by the USCIS.

For more information, see Employee's Social Security Number (SSN) in Publication 15 (Circular E), Employer's Tax Guide.

If you have a household employee, you may need to withhold and pay social security and Medicare taxes, pay federal unemployment tax, or both. To find out,
read Table 1.

You do not need to withhold federal income tax from your household employee's wages. But if your employee asks you to withhold it, you can. See Do You Need To Withhold Federal Income Tax? on page 6.

If you need to pay social security, Medicare, or federal unemployment tax or choose to withhold federal income tax, read Table 2 on page 4 for an overview of what you may need to do.

Social Security and Medicare Taxes

The social security tax pays for old-age, survivors, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance.

Both you and your household employee may owe social security and Medicare taxes. Your share is 7.65% (6.2% for social security tax and 1.45% for Medicare tax) of the employee's social security and Medicare wages. Your employee's share is the same.

You can use Table 3 on page 17 to figure the amount of social security and Medicare taxes to withhold from each wage payment.

You are responsible for payment of your employee's share of the taxes as well as your own. You can either withhold your employee's share from the employee's wages or pay it from your own funds. If you decide to pay the employee's share from your own funds, see Not withholding the employee's share on page 5. Pay the taxes as discussed under How Do You Make Tax Payments? on page 7. Also, see What Forms Must You File? on page 8.

Social security and Medicare wages.   You figure social security and Medicare taxes on the social security and Medicare wages you pay your employee.

  If you pay your household employee cash wages of $1,600 or more in 2008, all cash wages you pay to that employee in 2008 (regardless of when the wages were earned) are social security and Medicare wages. However, any noncash wages you pay do not count as social security and Medicare wages.

  If you pay the employee less than $1,600 in cash wages in 2008, none of the wages you pay the employee are social security and Medicare wages and neither you nor your employee will owe social security or Medicare tax on those wages.

Cash wages.   Cash wages include wages you pay by check, money order, etc. Cash wages do not include the value of food, lodging, clothing, and other noncash items you give your household employee. However, cash you give your employee in place of these items is included in cash wages.

State disability payments treated as wages.   Certain state disability plan payments that your household employee may receive are treated as social security and Medicare wages. For more information about these payments, see Instructions for Schedule H (Form 1040), Household Employers, and the notice issued by the state.

Table 2. Household Employer's Checklist

You may need to do the following things when you have a household employee. 

When you hire a household employee:	□ Find out if the person can legally work in the United States. □ Find out if you need to pay state taxes.
When you pay your household employee:	□ Withhold social security and Medicare taxes. □ Withhold federal income tax. □ Make advance payments of the earned income credit. □ Decide how you will make tax payments. □ Keep records.
By February 2, 2009:	□ Get an employer identification number (EIN). □ Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement.
By March 2, 2009 (March 31, 2009 if you file Form W-2 electronically):	□ Send Copy A of Form W-2 to the Social Security Administration (SSA).
By April 15, 2009:	□ File Schedule H (Form 1040), Household Employment Taxes, with your 2008 federal income tax return (Form 1040). If you do not have to file a return, use one of the other filing options, such as the option to file Schedule H by itself.

Wages not counted.   Do not count wages you pay to any of the following individuals as social security and Medicare wages, even if these wages are $1,600 or more during the year.

1. Your spouse.

2. Your child who is under the age of 21.

3. Your parent. Exception: Count these wages if both the following conditions apply.

   1. Your parent cares for your child who is either of the following.

      1. Under the age of 18, or

      2. Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter.

   2. Your marital status is one of the following.

      1. You are divorced and have not remarried,

      2. You are a widow or widower, or

      3. You are living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in a calendar quarter.

4. An employee who is under the age of 18 at any time during the year. Exception: Count these wages if providing household services is the employee's principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.

Also, if your employee's cash wages reach $102,000 in 2008, do not count any wages you pay that employee during the rest of the year as social security wages to figure social security tax. (Continue to count the employee's cash wages as Medicare wages to figure Medicare tax.)

If you provide your employee transit passes to commute to your home, do not count the value of the transit passes (up to $115 per month for 2008) as wages. A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train.

If you provide your employee parking at or near your home or at or near a location from which your employee commutes to your home, do not count the value of parking (up to $220 per month for 2008) as wages.

If you reimburse your employee for transit passes or parking, you may be able to exclude the reimbursement amounts. See Publication 15-B, Employer's Tax Guide to Fringe Benefits, for special requirements for this exclusion.

Withholding the employee's share.   You should withhold the employee's share of social security and Medicare taxes if you expect to pay your household employee cash wages of $1,600 or more in 2008. However, if you prefer to pay the employee's share yourself, see Not withholding the employee's share, next.

  You can withhold the employee's share of the taxes even if you are not sure your employee's cash wages will be $1,600 or more in 2008. If you withhold the taxes but then actually pay the employee less than $1,600 in cash wages for the year, you should repay the employee.

  Withhold 7.65% (6.2% for social security tax and 1.45% for Medicare tax) from each payment of social security and Medicare wages. You can use Table 3, on page 17, to figure the proper amount to withhold. You will pay the amount withheld to the IRS with a matching amount for your share of the taxes. Do not withhold any social security tax after your employee's social security wages for the year reach $102,000.

  If you make an error by withholding too little, you should withhold additional taxes from a later payment. If you withhold too much, you should repay the employee.

Example.

You hire a household employee (who is an unrelated individual over age 18) to care for your child and agree to pay cash wages of $100 every Friday. You expect to pay your employee $1,600 or more for the year. You should withhold $7.65 from each $100 wage payment and pay your employee the remaining $92.35. The $7.65 is the sum of $6.20 ($100 × 6.2%) for your employee's share of social security tax and $1.45 ($100 × 1.45%) for your employee's share of Medicare tax. Match the $7.65 you withhold with $7.65 from your own funds when you pay the taxes.

Not withholding the employee's share.   If you prefer to pay your employee's social security and Medicare taxes from your own funds, do not withhold them from your employee's wages. The social security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. However, they are not counted as social security and Medicare wages or as federal unemployment (FUTA) wages.

Example.

You hire a household employee (who is an unrelated individual over age 18) to care for your child and agree to pay cash wages of $100 every Friday. You expect to pay your employee $1,600 or more for the year. You decide to pay your employee's share of social security and Medicare taxes from your own funds. You pay your employee $100 every Friday without withholding any social security or Medicare taxes.

For social security and Medicare tax purposes, your employee's wages each payday are $100. For each wage payment, you will pay $15.30 when you pay the taxes. This is $7.65 ($6.20 for social security tax + $1.45 for Medicare tax) to cover your employee's share plus a matching $7.65 for your share. For income tax purposes, your employee's wages each payday are $107.65 ($100 + the $7.65 you will pay to cover your employee's share of social security and Medicare taxes).

Federal Unemployment (FUTA) Tax

The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Like most employers, you may owe both the federal unemployment tax (the FUTA tax) and a state unemployment tax. Or, you may owe only the FUTA tax or only the state unemployment tax. To find out whether you will owe state unemployment tax, contact your state's unemployment tax agency. See the list of state unemployment agencies in the Appendix for the address.

The FUTA tax is 6.2% of your employee's FUTA wages. However, you may be able to take a credit of up to 5.4% against the FUTA tax, resulting in a net tax of 0.8%. Your credit for 2008 is limited unless you pay all the required contributions for 2008 to your state unemployment fund by April 15, 2009. The credit you can take for any contributions for 2008 that you pay after April 15, 2009, is limited to 90% of the credit that would have been allowable if the contributions were paid by April 15, 2009. (If you did not pay all the required contributions for 2007 by April 15, 2008, see Credit for 2007, later.)

Pay the tax as discussed under How Do You Make Tax Payments? on page 7. Also, see What Forms Must You File, later.

Do not withhold the FUTA tax from your employee's wages. You must pay it from your own funds.

FUTA wages.   Figure the FUTA tax on the FUTA wages you pay. If you pay cash wages to all of your household employees totaling $1,000 or more in any calendar quarter of 2007 or 2008, the first $7,000 of cash wages you pay to each household employee in 2008 is FUTA wages. (A calendar quarter is January through March, April through June, July through September, or October through December.) If your employee's cash wages reach $7,000 during the year, do not figure the FUTA tax on any wages you pay that employee during the rest of the year. For an explanation of cash wages, see the discussion on Social security and Medicare wages on page 4.

Wages not counted.   Do not count wages you pay to any of the following individuals as FUTA wages.

• Your spouse.

• Your child who is under the age of 21.

• Your parent.

Example.

You hire a household employee (who is not related to you) on January 1, 2008, and agree to pay cash wages of $200 every Friday. During January, February, and March you pay the employee cash wages of $2,600. You pay cash wages of $1,000 or more in a calendar quarter of 2008, so the first $7,000 of cash wages you pay the employee (or any other employee) in 2008 or 2009 is FUTA wages. The FUTA wages you pay may also be subject to your state's unemployment tax.

During 2008, you pay your household employee cash wages of $10,400. You pay all the required contributions for 2008 to your state unemployment fund by April 15, 2009. Your FUTA tax for 2008 is $56 ($7,000 × 0.8%).

Credit for 2007.   The credit you can take for any state unemployment fund contributions for 2007 that you pay after April 15, 2008, is limited to 90% of the credit that would have been allowable if the contributions were paid on or before April 15, 2008.

You must complete Worksheet A to figure the credit for late contributions if you paid any state contributions after the due date for filing
Form 1040.

You are not required to withhold federal income tax from wages you pay a household employee. You should withhold federal income tax only if your household employee asks you to withhold it and you agree. The employee must give you a completed Form W-4, Employee's Withholding Allowance Certificate.

If you and your employee have agreed to withholding, either of you may end the agreement by letting the other know in writing.

If you agree to withhold federal income tax, you are responsible for paying it to the IRS. Pay the tax as discussed under How Do You Make Tax Payments? on page 7. Also, see What Forms Must You File? on page 8.

Use the income tax withholding tables in Publication 15 (Circular E) to find out how much to withhold. Figure federal income tax withholding on wages before you deduct any amounts for other withheld taxes. Withhold federal income tax from each payment of wages based on the filing status and exemptions shown on your employee's Form W-4. Circular E contains detailed instructions.

Certain workers can take the earned income credit (EIC) on their federal income tax return. This credit reduces their tax or allows them to receive a payment from the IRS. You may have to make advance payment of part of your household employee's EIC along with the employee's wages. You also may have to give your employee a notice about the EIC.

When you file your 2008 federal income tax return in 2009, attach Schedule H (Form 1040), Household Employment Taxes, to your Form 1040. Use Schedule H to figure your total household employment taxes (social security, Medicare, FUTA, and withheld federal income taxes). Add these household employment taxes to your income tax. Pay the amount due by April 15, 2009. (For more information about using Schedule H, see Schedule H under What Forms Must You File? on page 9.)

You can avoid owing tax with your return if you pay enough tax during the year to cover your household employment taxes, as well as your income tax. You can pay the additional tax in any of the following ways.

Payment option for business employers.   If you own a business as a sole proprietor or your home is on a farm operated for profit, you can choose either of two ways to pay your 2008 household employment taxes. You can pay them with your federal income tax as previously described, or you can include them with your federal employment tax deposits or other payments for your business or farm employees. For information on depositing employment taxes, see Publication 15 (Circular E).

  If you pay your household employment taxes with your business or farm employment taxes, you must report your household employment taxes with those other employment taxes on Form 941, Employer's QUARTERLY Federal Tax Return, Form 944, Employer's ANNUAL Federal Tax Return, or Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, and on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. See Business employment tax returns, later.

  

The deduction that can be taken on Schedules C and F (Form 1040) for wages and employment taxes applies only to wages and taxes paid for business and farm employees. You cannot deduct the wages and employment taxes paid for your household employees on your Schedule C or F.

You must file certain forms to report your household employee's wages and the federal employment taxes for the employee if you pay any of the following wages to the employee.

The employment tax forms and instructions you need for 2008 will be sent to you automatically in January 2009 if you reported employment taxes for 2007 on Schedule H. Otherwise, for information on ordering these forms, see How To Get Tax Help on page 10.

Employer identification number (EIN).   You must include your employer identification number (EIN) on the forms you file for your household employee. An EIN is a 9-digit number issued by the IRS. It is not the same as a social security number.

  

You ordinarily will have an EIN if you previously paid taxes for employees, either as a household employer or as a sole proprietor of a business you own. If you already have an EIN, use that number.

  If you do not have an EIN, get Form SS-4, Application for Employer Identification Number. The instructions for Form SS-4 explain how you can get an EIN immediately by telephone or in about 4 weeks if you apply by mail. In addition, the IRS is now accepting applications through its website at www.irs.gov/businesses/small.

If your household employee cares for your dependent who is under age 13 or for your spouse or dependent who is not capable of self-care, you may be able to take an income tax credit of up to 35% of your expenses. To qualify, you must pay these expenses so you can work or look for work. If you can take the credit, you can include in your qualifying expenses your share of the federal and state employment taxes you pay, as well as the employee's wages. For information about the credit, see Publication 503, Child and Dependent Care Expenses.

You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

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