Using Schedule H of Federal Tax Form 1040 to Report Payments to Household Employees

Federal Income Tax form 1040 is broken down into sub-forms called schedules to account for differences in tax payers’ tax liability situations and make the tax-paying process modular. Schedule H is used to figure and report taxes for Household Employees. These taxes include Social Security and Medicare taxes paid to the Federal Government.

Whenever someone is hired to work in or around a tax payer’s home, the tax payer must determine whether filing Schedule H along with the standard 1040 tax form is necessary. Hiring someone for these purposes constitutes an employer/employee relationship between the tax payer and the worker. Failure to report this employment represents illegal employment and a failure to pay employment taxes to the Internal Revenue Service.

Schedule H must be filled out and filed for any of three possible reasons: (1) Any individual tax payer who paid any household employee wages of $1,700 or more in the tax year. Spouses, tax payer’s children under 21, parents, or anyone under 18 are not considered household employees. However, there are exceptions so tax payers should consult Line A in the Schedule H Instructions. (2) Any individual tax payer who withheld Federal Income Tax for a Household Employee during the tax year. (3) Any individual tax payer who paid total cash wages to all household employees of $1,000 or more in any calendar quarter of the previous tax year or the current tax year. Wages paid to spouses, the tax payer’s children under 21, and parents should not be used to figure these amounts.

Constitution of a household employee is finely defined on Schedule H. It includes any individual hired by the tax payer to work in or around the tax payer’s house if the tax payer had control over the work that was done and the manner in which it was completed. Even if the employee was give freedom of action, this constitutes an employer/employees relationship. If the tax payer had control of the details of what work was done, Schedule H must be filed.

Schedule H does not need to be filled out if someone operating a business or his employees/agents did the work under the owner’s business. Schedule H is for employees such as babysitters, caretakers, drivers, nannies, housekeepers, and yard workers. This includes workers hired through an agency or a list provided by an agency. Either full- or part-time employees are included in Schedule H.

Hiring an individual to work in or around a tax payer’s house defines an employer/employee relationship unless the worker owns a business related to the work completed or is an employee of someone else hired to do the job. Many tax payers are unaware that simply hiring someone for babysitting constitutes employment and the necessity to file Schedule H along with the standard 1040 tax form. Failure to properly declare an employee, report the relationship, and pay taxes on the employment can result in fines and other penalties.

Always consult with a tax professional for questions about your tax liability.