Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employees. Repairmen, plumbers, contractors, and other business people who work for you as independent contractors are not your employees.

If you pay a household employee cash wages of $1,000 or more in a calendar year, you generally must withhold social security and Medicare taxes from all cash wages you pay to that employee. Unless you prefer to pay your employee's share of social security and Medicare taxes from your own funds, you should withhold 7.65% (6.2% for social security tax and 1.45% for Medicare tax) from each payment of cash wages. Instead of paying this amount to your employee, you will pay it to the IRS with a matching amount for your share of the taxes. However, do not withhold or pay these taxes from wages you pay to an employee who is under age 18 at any time during the year unless performing household work is the employee's principal occupation. If the employee is a student, performing household work is not considered to be his or her principal occupation.

You are not required to withhold federal income tax from wages you pay a household employee. However, if your employee asks you to withhold federal income tax and you agree, you will need Form W-4, Employee's Withholding Allowance Certificate, and Publication 15, which has tax withholding tables.

If you withhold or pay social security and Medicare taxes or withhold federal income tax, you will need to file Form W-2 after the end of the year. To complete Form W-2 you will need both an employer identification number and your employee's social security number. If you do not already have an employer identification number, get Form SS-4 to apply for one.

If you will file more than one Form W-2, you will also need a Form W-3. Refer to Topics 752 and 755 for more information.

If you pay cash wages to household employees totaling $1,000 or more in any calendar quarter of this year or last year, you generally must pay federal unemployment tax on the first $7,000 of cash wages you pay to each of your household employees this year.

If you must file Form W-2 or pay federal unemployment tax, you will also need to file a Schedule H (Form 1040), Household Employment Taxes. However, a sole proprietor who must file Form 940 and Form 941 for business employees may include household employee tax information on these forms. You generally will file Schedule H after the end of the year with your individual income tax return (Form 1040 or 1040A).

You can avoid owing tax with your return if you pay enough federal income tax before you file to cover both the employment taxes for your household employee and your income tax. If you are employed, you can ask your employer to withhold more federal income tax from your wages during the year. Or, you can make estimated tax payments to the IRS during the year, or increase your payments if you already make them.

You may have to pay an estimated tax penalty if you do not have enough federal income tax withheld or pay enough estimated tax. For 1995, 1996, and 1997, the penalty does not apply to employment taxes for your household employees.

For more information, refer to Publication 926, Household Employer's Tax Guide.

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