What Form 1040 Schedule H (2017) Is For
Form 1040 Schedule H is used to report household employment taxes for individuals who hire a household employee and pay wages that meet federal thresholds. The form helps taxpayers calculate Social Security, Medicare tax, federal unemployment taxes, and any federal income taxes withheld on wages paid to household employees. It is filed with the annual Form 1040, allowing the taxpayer to include these employment tax obligations as part of a single income tax filing.
A taxpayer must file Schedule H if they paid a household employee, such as a nanny, caregiver, babysitter, gardener, housekeeper, au pair, or personal chef. These workers qualify as household employees when the taxpayer controls both the manner and timing of the work. The Internal Revenue Service requires filing when specific wage thresholds are met, and the form applies whether the employer uses a payroll service provider or manages taxes directly.
When You’d Use Form 1040 Schedule H
A taxpayer uses Form 1040 Schedule H when they have a household employee and paid wages that trigger Social Security, Medicare tax, or FUTA tax requirements. This includes nannies, caregivers, gardeners, au pairs, and other similar household employees who perform work under the employer's control. The form is required when wages reach the federal thresholds or when federal income taxes are withheld at the employee’s request.
Form 1040 Schedule H must also be filed when correcting prior-year household employment taxes using an amended return. A late or amended filing is made through Form 1040X, accompanied by a corrected Schedule H, to update wages paid or federal unemployment reporting. The form may be filed separately when the taxpayer does not need a complete Form 1040.
Key Rules or Details for 2017
For 2017, Schedule H applies when a household employee received at least $2,000 in cash wages subject to Social Security and Medicare tax. An employer owes FUTA tax when total salaries paid to all household employees reach $1,000 in any calendar quarter of 2016 or 2017. These rules apply whether the employer uses a payroll service provider or prepares all IRS forms independently.
Certain wages are excluded, including payments to spouses, parents, or children under the age of 21. Additionally, rules differ for disability insurance, SUTA tax, and city withholding. An Employer Identification Number is required to file Form W-2 and Form W-3 with the Social Security Administration. Additional Medicare Tax may apply in rare high-income situations, and state unemployment rules can vary depending on whether the state is a credit reduction state.
Step-by-Step (High-Level)
Step 1: Determine whether filing is required
A taxpayer reviews whether they paid a household employee at least $2,000 in 2017, withheld federal income taxes, or spent $1,000 or more in any quarter during 2016–2017. If any of these apply, they must file Schedule H.
Step 2: Calculate Social Security and Medicare tax
The taxpayer enters cash wages subject to Social Security and Medicare taxes and calculates the employer and employee shares. The form includes lines for applying the correct percentage rates for each tax, and the taxpayer must review whether any Additional Medicare Tax applies.
Step 3: Calculate FUTA tax
The form requires entering wages subject to FUTA tax, reporting state unemployment contributions, and determining any reduction based on state credits. The taxpayer identifies whether their state is a credit reduction state.
Step 4: Total all Employment Tax responsibilities
The form combines Social Security, Medicare tax, FUTA tax, and any federal income taxes withheld. The total household employment tax amount is carried to Form 1040.
Step 5: File Forms W-2 and W-3
The taxpayer prepares Form W-2 for each household employee and submits Form W-3 to the Social Security Administration. These tax forms must be filed by January 31.
Step 6: Submit Schedule H with Form 1040
The completed Schedule H is attached to the taxpayer’s IRS Form 1040, along with forms such as Schedule A, Schedule E, Schedule R, Schedule SE, Form 990, Form 990 Schedule H, or Schedule EIC when required. The return may be filed electronically using the latest versions of IRS forms or a PDF file through software such as Adobe Acrobat.
Step 7: Consider Making Estimated Tax Payments
Taxpayers may use Estimated Tax for Individuals to cover household employment obligations during the year. This may help individuals who also claim credits such as the Child Tax Credit or Earned Income Credit.
Common Mistakes and How to Avoid Them
Misclassifying a household employee
Treat the worker as a household employee if you control how, when, or where the work is done, and withhold and report Social Security and Medicare taxes using Schedule H.
Forgetting to file Forms W-2 or W-3
Failing to file wage statements with the Social Security Administration can result in penalties. Ensuring timely filing reduces processing delays and ensures proper wage reporting.
Missing the FUTA threshold
Some taxpayers overlook that FUTA applies when the total payroll reaches $1,000 in any quarter. The employer should review payroll records on a regular basis.
Ignoring state-level unemployment rules
States may require separate unemployment taxes, workers’ compensation, or disability insurance. A household employer should review state employment tax requirements carefully to maintain compliance.
Not maintaining adequate tax and accounting records
Taxpayers should retain accurate payroll logs, tax deposits, employee information, and wage reports for compliance purposes and to facilitate attorney review if issues arise later.
What Happens After You File
After Schedule H is filed with Form 1040, the Internal Revenue Service processes all household employment taxes together with the taxpayer’s federal income taxes. The Social Security Administration updates employee wage records using the information reported on Form W-2 and Form W-3, ensuring accurate crediting for Social Security and Medicare tax purposes. If any discrepancies appear in FUTA tax, wages paid, or Social Security number details, the taxpayer may receive an IRS notice and can correct the return using Form 1040X.
FAQs
Does a household employer need an Employer Identification Number?
Yes, an EIN is required to file Forms W-2 and W-3. The taxpayer should apply for the number before issuing wage documents.
Are wages paid to family members subject to household employment taxes?
Wages paid to a spouse, parent, or child under age 21 are generally exempt. Exceptions apply in limited care-related circumstances.
Do au pairs qualify as household employees?
Yes, au pairs are considered household employees when they receive wages and perform household work.
Can a taxpayer use direct deposit for a refund when filing Schedule H?
Yes, the taxpayer may choose direct deposit when filing Form 1040.
Are commuting reimbursements taxable for household employees?
Qualified parking and commuter transportation reimbursements may be excludable up to the annual limits. Amounts above these limits may be taxable wages.
Can a payroll service provider handle the filing of payroll taxes?
A payroll service provider may assist, but the taxpayer remains responsible for ensuring that all IRS forms and employment taxes are submitted accurately and on time.
