Publication 926: Household Employer's Tax Guide; Household Employer's Tax Guide (Revised 11/2002)

Publication 926

2002 Tax Year

Household Employer's Tax Guide
(Revised 11/2002)

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This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Important Reminders

Social security and Medicare wage threshold is $1,300. The social security and Medicare wage threshold is $1,300 for 2002. This means that if you pay a household employee cash wages of less than $1,300 in 2002, you do not have to report and pay social security and Medicare taxes on that employee's 2002 wages. For more information, see Social security and Medicare wages under Social Security and Medicare Taxes.

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Introduction

The information in this publication applies to you only if you have a household employee. If you have a household employee in 2002, you may need to pay state and federal employment taxes for 2002. You generally must add your federal employment taxes to the income tax that you will report on your 2002 federal income tax return.

This publication will help you decide whether you have a household employee and, if you do, whether you need to pay federal employment taxes. It explains how to figure, pay, and report social security tax, Medicare tax, federal unemployment tax, and federal income tax withholding for your household employee. It also explains what records you need to keep.

This publication also tells you where to find out whether you need to pay state unemployment tax for your household employee.

Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.

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www.irs.gov.

You can write to us at the following address:

Internal Revenue Service
Technical Publications Branch
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Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Do You Have a Household Employee?

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.

Example. You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household employee.

Household work. Household work is work done in or around your home by the following people.

Babysitters
Cleaning people
Housekeepers
Nannies
Health aides
Private nurses
Maids
Caretakers
Yard workers
Similar domestic workers

Workers who are not your employees. If only the worker can control how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.

A worker who performs child care services for you in his or her home generally is not your employee.

If an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

Example. You made an agreement with John Peters to care for your lawn. John runs a lawn care business and offers his services to the general public. He provides his own tools and supplies, and he hires and pays any helpers he needs. Neither John nor his helpers are your household employees.

More information. More information about who is an employee is in Publication 15-A, Employer's Supplemental Tax Guide.

Can Your Employee Legally Work in the United States?

CAUTION: It is unlawful for you to knowingly hire or continue 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 complete the Immigration and Naturalization Service (INS) 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 INS, 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 INS Handbook for Employers (Form M-274).

PHONE: Call the INS at 1-800-870-3676 to order the Handbook for Employers. If you have questions about the employment eligibility verification process or other immigration-related employment matters, contact the INS Office of Business Liaison at 1-800-357- 2099.

COMPUTE: You can also visit the INS web site at www.ins.usdoj.gov to get Form I-9.

Do You Need To Pay Employment Taxes?

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.

Table 1

Table 1. Do You Need To Pay Employment Taxes?
IF you ... THEN you need to ...

A- Pay cash wages of $1,300 or more in 2002 to any one household employee. Withhold and pay social security and Medicare taxes

     Do not count wages you pay to -

Your spouse,
Your child age 20 or younger,
Your parent (see page 4 for an exception), or
Any employee age 17 or younger at any time in 2002 (see page 4 for an exception).

The taxes are 15.3% of cash wages.
Your employee's share is 7.65%.   (You can choose to pay it yourself and not withhold it.)
Your share is a matching 7.65%.

B- Pay total cash wages of $1,000 or more in any calendar quarter of 2001 or 2002 to household employees. Pay federal unemployment tax

     Do not count wages you pay to -

Your spouse,
Your child age 20 or younger, or
Your parent.

The tax is usually 0.8% of cash wages.
Wages over $7,000 a year per employee are not taxed.
You may also owe state unemployment tax.

Note: If neither A nor B above applies, you do not need to pay any federal employment taxes. But you may still need to pay state employment taxes.

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, later.

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

TAXTIP: If you do not need to pay social security, Medicare, or federal unemployment tax and do not choose to withhold federal income tax, read State employment taxes, next. The rest of this publication does not apply to you.

State employment taxes. You should contact your state unemployment tax agency to find out whether you need to pay state unemployment tax for your household employee. For the address and phone number, see the Appendix. You should also find out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance.

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.

TAXTIP: You can use Table 3 (shown near the end of this publication) 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, later. Pay the taxes as discussed under How Do You Make Tax Payments, later. Also, see What Forms Must You File, later.

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 $1,300 or more in 2002, all cash wages you pay to that employee in 2002 (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 $1,300 in cash wages in 2002, 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 the instructions for Schedule H (Form 1040), Household Employment Taxes, 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 January 31, 2003: Get an employer identification number. Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement.

By February 28, 2003: Send Copy A of Form W-2 to the Social Security Administration.

By April 15, 2003: File Schedule H (Form 1040), Household Employment Taxes, with your 2002 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 $1,300 or more during the year.

Your spouse.
Your child who is age 20 or younger.
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. Age 17 or younger, 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 martial 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.
An employee who is age 17 or younger 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 $84,900 in 2002, do not count any wages you pay that employee during the rest of the year as social security wages to figure social security tax. (But continue to count the employee's cash wages as Medicare wages to figure Medicare tax.)

If you reimburse your employee for the amount paid for transit passes used to commute to your home, do not count the reimbursement (up to $65 per month for 2001) as wages. See Publication 15-B, Employer's Tax Guide to Fringe Benefits, for the 2002 amount. A transit pass includes any pass, token, farecard, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train.

If you reimburse your employee for the amount paid for parking at or near your home or at or near a location from which your employee commutes to your home, do not count reimbursement (up to $180 per month for 2001) as wages. See Publication 15-B for the 2002 amount.

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 $1,300 or more in 2002. 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 $1,300 or more in 2002. If you withhold the taxes but then actually pay the employee less than $1,300 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, later, 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 $84,900.

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 $1,300 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, you do not have to 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 $1,300 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).

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Household Employer's Tax Guide(Revised 11/2002)

Household Employer's Tax Guide
(Revised 11/2002)