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. Household workers are your employees if you can control not only the work they do, but how they do it.

If you pay a household employee cash wages of $1,100 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:

1. your spouse,
2. your child who is under age 21,
3. your parent, unless an exception is met; or
4. 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 (EIN) for yourself and your employee's Social Security number. If you do not already have an EIN, order the application Form SS-4 by calling 1-800-829-3676, or download here. If you will file more that one Form W-2, you will also need a Form W-3. Select 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 1997 or $1,000 in any calendar quarter of 1998, 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, Household Employment Taxes after the end of the year with your individual income tax return ( Form 1040 or 1040A). However, a sole proprietor who must file Form 940 and Form 941 or Form 943 for business employees may include household employee tax information on these forms.

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. You can also make estimated tax payments to the IRS during the year, or increase the payments you already make.

Beginning in 1998, the estimated tax penalty may apply to household employers who:

1. Do not prepay household employment taxes, and
2. Either:
   1. Will have federal income tax withheld from pay, pensions, annuities, etc., or
   2. Would be required to make estimated tax payments (to avoid the penalty) even if no household employment taxes were owed.

   For more information, see Publication 926, Household Employer's Guide.

Publications can be downloaded from this site, or ordered by calling 1-800-829-3676.

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