What Form 1040 Schedule H (2012) Is For
Household employers use IRS Form 1040, Schedule H (2012), to report household employment taxes, including Social Security tax, Medicare tax, and federal unemployment tax. A taxpayer must file Schedule H when total cash wages paid to a household employee reach thresholds that require reporting under the Federal Unemployment Tax Act or when they withhold federal income tax. The form enables the Internal Revenue Service to accurately credit Social Security and Medicare taxes accurately, ensuring that employment wages are reported on an individual's income tax return.
Schedule H applies only to household employees who perform household work and are not treated as independent contractors. A household employer uses the household employment taxes schedule to report household employment taxes, calculate FUTA tax liability, and determine whether state unemployment taxes affect the FUTA tax credit. These rules apply when wages paid, employment taxes, or withheld federal income tax meet filing requirements for the tax year.
When You’d Use Form 1040 Schedule H
A taxpayer uses Schedule H when one or more household employees are paid cash wages requiring Social Security, Medicare, or federal unemployment tax reporting. Filing is required if an employee received $1,800 or more in cash wages in 2012, if federal income tax was withheld, or if wages reached $1,000 or more in any calendar quarter of 2011 or 2012. These rules ensure that a household employer reports wages paid and pays employment taxes as required by the federal government.
Schedule H is also used when FUTA taxable wages create a requirement to pay FUTA tax or when state unemployment taxes affect the FUTA tax rate. A taxpayer must file Schedule H with Form 1040 or as a stand-alone tax form when no income tax return is required. The form confirms compliance with federal unemployment tax, Social Security, and Medicare taxes tied to a household employee’s wages.
For complete details on wage reporting, withholdings, and tax filings, see our guide for Individual Schedules.
Key Rules or Details for 2012
For 2012, the tax applies when a household employer pays $1,800 or more in cash wages, withholds federal income tax, or pays $1,000 or more in any calendar quarter. These thresholds activate Social Security tax, Medicare tax, and federal unemployment tax requirements. A taxpayer must report total wages paid and calculate tax liability based on the employment wages paid during the calendar year.
FUTA taxes apply to the first $7,000 of wages with a 6.0 percent FUTA rate before credits. A FUTA credit reduces this amount when state unemployment taxes are paid, unless the employer is in a state with a credit reduction. Social Security tax applies to wages up to $110,100, while Medicare taxes apply to all wages. Filing Schedule H ensures that household employers meet the Internal Revenue Service's reporting rules for employment taxes.
Step-by-Step (High-Level)
Before Filing
A taxpayer should complete the following steps before preparing Schedule H:
- Obtain an Employer Identification Number through the Internal Revenue Service.
- Verify each employee’s identity and work eligibility using Form I-9.
- Track employment wages, taxes withheld, and total wages paid for the calendar year.
- Withhold federal income tax only if the employee requests it and the taxpayer agrees.
During the Year
A household employer must complete tasks such as tracking Social Security and Medicare taxes on employees' wages and ensuring proper calculation of the federal unemployment tax. A taxpayer must pay employment taxes from personal funds and never deduct FUTA tax from employees.
Filing the Form
A taxpayer completes Schedule H by:
- Answering the initial general test questions
- Calculating Social Security tax and Medicare tax based on total cash wages
- Calculating FUTA taxes based on FUTA taxable wages and allowable credits
- Reporting household employment taxes on the individual income tax return
The total tax liability is added to the primary tax return and paid with other income tax obligations.
If your corporation is facing tax challenges, explore our business tax relief services for professional support.
Common Mistakes and How to Avoid Them
- Misclassifying a household employee as an independent contractor: Determine worker status based on whether you control how the work is performed to ensure correct tax reporting.
- Missing Form W-2 and Form W-3 deadlines: Provide Form W-2 to the employee by January 31 and file Form W-2 (Copy A) and Form W-3 with the Social Security Administration on time.
- Including noncash benefits in cash wages: Count checks, money orders, and other cash payments as wages, but exclude the value of food, lodging, or in-kind benefits unless cash is provided instead.
- Continuing to withhold Social Security tax after the annual limit: Stop withholding Social Security once the wage cap is reached, and continue Medicare withholding with no income limit.
- Misunderstanding what counts as taxable wages: Review IRS household employment rules to ensure only the correct cash payments and taxable amounts are included in wage calculations.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After a taxpayer files IRS Form 1040 Schedule H (2012), the Internal Revenue Service processes the household employment taxes with the individual income tax return and applies the total tax liability to the account. The Social Security Administration uses Form W-2 information to credit Social Security and Medicare taxes to the employee’s wages, which affects future unemployment benefits and unemployment compensation records.
If discrepancies arise between Schedule H and the salaries paid reported to the Social Security Administration, the taxpayer may receive a notice requesting clarification. A household employer must also confirm any state unemployment taxes owed because state unemployment insurance requirements operate separately from the federal unemployment tax.
FAQs
Do household employers need Schedule H if a worker is paid less than $1,800?
A taxpayer does not owe Social Security and Medicare tax if no employee received $1,800 or more in cash wages, but FUTA may still apply if the $1,000 quarterly threshold was met.
Can a taxpayer pay an employee’s share of Social Security and Medicare taxes?
Yes, if the taxpayer pays the employee’s share, the amount paid must be treated as additional income for federal income tax purposes.
Is an EIN required for household employment taxes?
Yes, a taxpayer cannot use a personal Social Security number and must obtain an EIN through the IRS.
Do part-time workers count as household employees?
Yes, the number of hours worked does not determine employee status. The key factor is whether the employer controls how the work is performed.
Does FUTA apply if wages were paid in only one quarter?
Yes, if total wages reached $1,000 or more in any calendar quarter of 2011 or 2012, the taxpayer must pay FUTA tax on the first $7,000 of the employee’s wages.
For more resources on filing or understanding other IRS forms, visit our Form Summaries and Guides Library.
