Schedule h

What Is Schedule H?

Schedule H is an Internal Revenue Service (IRS) tax form used by individuals who employ household workers to report and pay certain employment taxes. This form falls under the broader financial category of taxation, specifically relating to domestic employment. If an individual pays cash wages above certain thresholds to a household employee, they generally must file Schedule H with their annual tax returns⁵⁵, ⁵⁶.

Household employees are individuals who perform work in or around a private home, where the employer controls what work is done and how it is done. Examples include nannies, housekeepers, caregivers, and gardeners. Schedule H ensures that Social Security and Medicare taxes (known collectively as FICA taxes), as well as federal unemployment tax (FUTA), are properly accounted for and remitted to the government⁵³, ⁵⁴.

History and Origin

Prior to 1994, household employers were required to report and remit FICA taxes quarterly using IRS Form 942 if they paid a household employee more than $50 in any calendar quarter⁵². This low threshold meant that many families, even those hiring an occasional babysitter, were technically subject to these rules, often unknowingly⁵¹.

Following national attention regarding the complexities of household employment taxes, particularly during the early 1990s, Congress simplified these "nanny tax" laws in 1994⁵⁰. The simplification involved raising the wage threshold for Social Security and Medicare taxes and changing the reporting frequency. Instead of quarterly filings, household employers could now report and pay these taxes annually by attaching Schedule H to their individual federal income tax return, eliminating the need for Form 942⁴⁹. This change also streamlined the reporting of FUTA tax, which could also be calculated and paid via Schedule H, removing the requirement for a separate annual FUTA tax return⁴⁸.

Key Takeaways

• Schedule H is an IRS form for reporting and paying employment taxes for household employees.
• It covers Social Security, Medicare, and federal unemployment taxes.
• Employers must file Schedule H if they pay a household employee cash wages exceeding an annual threshold (e.g., $2,800 for 2025) or total cash wages of $1,000 or more to all household employees in any calendar quarter⁴⁶, ⁴⁷.
• Schedule H is generally filed as an attachment to an individual's Form 1040, but can be filed separately if no other tax return is being filed⁴⁴, ⁴⁵.
• Proper filing of Schedule H ensures household employees accrue Social Security and Medicare benefits⁴², ⁴³.

Formula and Calculation

The calculation of household employment taxes reported on Schedule H involves several components:

1. Social Security and Medicare Taxes (FICA):
These taxes are shared between the employer and employee. For Social Security, the employer and employee each pay 6.2% of wages up to the annual wage base limit, while for Medicare, each pays 1.45% of all wages with no wage base limit⁴⁰, ⁴¹. The combined FICA tax rate is 15.3% (7.65% for the employer and 7.65% for the employee)³⁸, ³⁹.

The employer is responsible for withholding the employee's share from their payroll and remitting both shares to the IRS³⁶, ³⁷.

2. Federal Unemployment Tax (FUTA):
This tax is paid solely by the employer. If total cash wages to household employees exceed $1,000 in any calendar quarter, FUTA tax generally applies to the first $7,000 of cash wages paid to each employee³⁴, ³⁵. The net FUTA tax rate is typically 0.6% after considering state unemployment tax credits.

3. Federal Income Tax Withholding (Optional):
While not mandatory, an employer can agree to withhold federal income tax from a household employee's wages if the employee requests it and provides a completed Form W-4³², ³³. This amount is then reported on Schedule H and paid to the IRS³¹.

Interpreting the Schedule H

Interpreting Schedule H primarily involves understanding the tax obligations for household employers and ensuring compliance with federal tax law. The form itself serves as a summary of wages paid to household employees and the corresponding taxes—Social Security, Medicare, and FUTA—that are owed to the government.

When reviewing a completed Schedule H, employers can see the total wages subject to FICA and FUTA taxes, the calculated tax amounts, and any federal income tax withholding that occurred. The final line of Schedule H reflects the total household employment taxes due, which is then added to the employer's individual tax liability on their Form 1040. If the amounts reported on Schedule H do not match what the IRS expects based on prior quarterly payments or estimated tax payments, it could lead to discrepancies or penalties.

Hypothetical Example

Sarah hires a part-time nanny, Maria, to care for her children. In 2025, Sarah pays Maria a total of $10,000 in cash wages.

1. Determine if Schedule H is required: Since Sarah paid Maria $10,000, which is above the 2025 threshold of $2,800 for a single household employee, Sarah must file Schedule H.
   2.²⁹, ³⁰ Calculate Social Security and Medicare Taxes (FICA):
   • Social Security: Maria's wages are below the annual wage base limit, so both Sarah and Maria each pay 6.2%.
     Employee's share: ( $10,000 \times 0.062 = $620 )
     Employer's share: ( $10,000 \times 0.062 = $620 )
   • Medicare: Both Sarah and Maria each pay 1.45% of all wages.
     Employee's share: ( $10,000 \times 0.0145 = $145 )
     Employer's share: ( $10,000 \times 0.0145 = $145 )
   • Total FICA taxes: ( $620 + $620 + $145 + $145 = $1,530 )
2. Calculate Federal Unemployment Tax (FUTA): Sarah paid more than $1,000 in a calendar quarter, so FUTA applies to the first $7,000 of wages. Assuming a net FUTA rate of 0.6% after state credits.
   • FUTA Tax: ( $7,000 \times 0.006 = $42 )
3. Federal Income Tax Withholding: Maria did not ask Sarah to withhold federal income tax, so this amount is $0.
4. Total Taxes: Sarah will report total household employment taxes of ( $1,530 + $42 = $1,572 ) on Schedule H, which will then be included when she files her Form 1040. She will also issue Maria a Form W-2 by January 31 of the following year.

#²⁸# Practical Applications

Schedule H is critical for individuals who engage household employees to ensure legal compliance with U.S. tax laws. Its practical applications span several key areas:

• Tax Compliance for Employers: It provides a structured way for employers to report and remit the required Social Security, Medicare, and FUTA taxes to the IRS. Without proper filing of Schedule H, employers can face penalties for non-compliance.
• ²⁷ Employee Benefits and Protections: By correctly paying Social Security and Medicare taxes through Schedule H, household employees accrue credits towards future Social Security retirement, disability, and survivor benefits, as well as Medicare coverage. Th²⁵, ²⁶is also enables them to qualify for unemployment benefits if their employment ends. Fo²⁴r further details on the significance of these contributions for retirement, the Social Security Administration provides information for household workers.
• ²³ Avoiding Misclassification: Schedule H helps distinguish a household employee from an independent contractor. The IRS defines a household employee as someone whose work an employer controls, contrasting with an independent contractor who controls their own work methods. Misclassifying an employee as an independent contractor can lead to significant back taxes, interest, and penalties for the employer.
• Financial Planning: For household employers, understanding the financial implications of having a household employee, including the tax burden reported on Schedule H, is crucial for personal financial planning and budgeting.

Limitations and Criticisms

While Schedule H simplifies the reporting of household employment taxes for many, it does have limitations and has faced criticism:

• Complexity for First-Time Employers: Despite simplifications, managing household employee taxes can still be daunting for individuals who are not accustomed to employer responsibilities. The need to obtain an Employer Identification Number (EIN), track wages, understand tax thresholds, and complete the form can be complex for those unfamiliar with tax regulations.
• ²² Compliance Gaps: Historically, there have been challenges with compliance in household employment, sometimes referred to as the "nanny tax" issue. This is partly due to a lack of awareness among employers about their tax obligations or a perceived complexity that leads to non-compliance.
• Interaction with Other Forms: Confusion can arise when household employers also have business employees, as taxes for business employees are reported on different forms (like Form 940 and Form 941). While it is generally recommended to use Schedule H for household employees, some employers might mistakenly use business forms, which can lead to double reporting if not handled carefully. Th¹⁸, ¹⁹, ²⁰, ²¹e IRS states that if a household employer has a business with employees, they may pay household employment taxes with their business taxes on Forms 941, 943, 944, and 940, in which case Schedule H is not filed for those household employees. Ho¹⁷wever, if the household employee is the only employee and the employer does not have a business EIN, Schedule H must be used.

#¹⁶# Schedule H vs. Form 940

Schedule H and Form 940 both deal with federal unemployment taxes (FUTA), but they are used by different types of employers or in different circumstances.

The main point of confusion arises when an individual who already operates a business and files Form 940 hires a household employee. Generally, if household employees are the only employees, Schedule H is the appropriate form. However, if an employer has both business and household employees, they may include household employment taxes with their business tax filings on forms like Form 940 and Form 941, thereby negating the need for Schedule H. It¹⁴, ¹⁵ is crucial to avoid double reporting taxes on both Schedule H and business employment tax forms.

#¹², ¹³# FAQs

What is a household employee for tax purposes?

An individual is considered a household employee if you control what work they do and how they do it. This typically includes nannies, housekeepers, caregivers, and gardeners who work in your home. If¹¹ the worker controls their own work, they are usually an independent contractor.

When do I need to file Schedule H?

You generally need to file Schedule H if you paid any single household employee cash wages of $2,800 or more in 2025, or if you paid total cash wages of $1,000 or more to all household employees in any calendar quarter of 2024 or 2025. Yo⁹, ¹⁰u must also file Schedule H if you withheld federal income tax at your employee's request.

#⁸## What taxes are reported on Schedule H?

Schedule H is used to report Social Security and Medicare taxes (together known as FICA taxes), and federal unemployment tax (FUTA) for your household employees. It may also include any federal income tax you withheld from their wages.

#⁶, ⁷## Can I pay my household employee's share of FICA taxes?

Yes, you can choose to pay your household employee's share of Social Security and Medicare taxes from your own funds instead of withholding them from their wages. Ho⁵wever, the amounts you pay for your employee's share count as additional wages for income tax purposes, meaning your employee will be taxed on that amount.

#³, ⁴## What happens if I don't file Schedule H or pay these taxes?

Failure to file Schedule H or pay the required household employment taxes can result in penalties and interest from the IRS. It² also means your household employee may not receive proper credit for their Social Security and Medicare contributions, which could impact their future benefits.¹