Are Household Employees Subject to FUTA Tax?
Are household employees subject to FUTA tax?
Yes, if you perform work for a home, including doing laundry, housework, and other domestic duties. You will be required to file Schedule H with your tax return for these individuals. FUTA taxes are imposed on wages over $7,000 in a calendar quarter. If you earn less than this amount in a calendar quarter, you will not have to pay FUTA taxes for the next two years.
The tax rules on household employees differ depending on the type of employee. Generally, household employees are not related to their employer and receive a minimum wage of $200 per week. This means they must earn more than $1,600 in a calendar quarter to qualify for FUTA wages. However, if you are a sole proprietor, you will not pay federal income tax on your FUTA wages, as the state unemployment tax will be deducted from those amounts.
Household Employment Taxes
When both of these are applicable, the IRS considers you an employer of a person.
- The person was hired to work in your house.
- You can control how they perform the work.
These employees include:
- Housekeepers
- Maids
- Nannies
- Gardeners
Employers might pay employment taxes, also known as the “nanny tax.” You might be required to pay the following employment taxes:
- Social security tax
- Medicare tax
- Federal unemployment tax
- Taxes on unemployment in the state (varies from one state to another)
Social Security and Medicare
You can pay your household employees $1,900 cash wages and more in 2021.
- Earn Social Security benefits
- Medicare salaries
It did not matter when the worker earned the wages. However, all wages will be subject to Social Security and Medicare taxes.
Employers who pay less than $1,900 per hour in cash wages by 2021 will not be entitled to Social Security or Medicare wages. These wages will not be subject to Medicare or Social Security tax.
Your payment of Medicare and Social Security taxes is not subject to the following rules:
- Employees under the age 18
- Children under age 21
- Spouse
- Parents, in many cases
Federal unemployment tax ( FUTA )
Cash wages may have been paid to household employees in cash amounts of $1,000 or more during a calendar quarter of 2021 or the year before. FUTA wages are the first $7,000 in cash wages each household employee receives in 2021 or 2022.
Calendar quarters include:
- January through March
- April through June
- July through September
- October through December
Do not include FUTA tax if your employee’s cash earnings exceed $7,000 in a given year.
If both apply, the cash wages in 2021 may still be FUTA wages.
- In each quarter of 2021, the cash wages are less than $1,000
- In 2020, you had a household worker.
These would be FUTA wages if cash wages paid to household workers in any quarter of 2020 were $1,000 or greater.
Your federal unemployment tax payment is not subject to the following rules:
- Children under age 21
- Spouse
- Parent
Although you are not required to withhold federal income taxes, your employee may request it.
You must file a W-2: Wage & Tax Statement for each household member you pay.
- For the tax year 2021, Social Security and Medicare earnings of $1,900 or greater.
- You withheld federal income taxes from wages.
Schedule H may be required to be filed with your return to report household employment taxes. If you paid any of these taxes in 2021, do this:
- Cash wages up to $1,900 for any household member
- FUTA Wages — Total cash wages of $1,000 or greater in any calendar quarter for all household employees
- You withheld federal income taxes from household workers.
An employer identification number (EIN) is required if you need to file Schedule H and a W-2. Either of these options will allow you to obtain one:
- Filling Form SS-4: Application to Employer Identification Number
- Online application at www.irs.gov
[ See also: Wikipedia. – FUTA ]
