The information in this article is up to date through tax year 2019 (taxes filed in 2020).
All employers are required to pay the same employment taxes, whether it’s a commercial business with a global workforce or a homeowner paying a housekeeper that visits once a week. If you employ people to work inside your home (like landscapers, pool maintenance staff, nannies, house cleaners, etc.) then you are responsible for employment tax.
Both Schedule H and Form 941 are used to determine an employer’s employment tax liability, but they are not interchangeable. Here’s when to use each of these forms.
When to file Schedule H
Schedule H should be used if any of the following are true:
- You paid any one household worker over $2,100 in cash wages that year,
- you paid all workers at least $1,000 in a quarter that year or the previous year,
- or you withheld federal income taxes from any employees during the year.
If any of those apply to you, then the wages you pay are subject to Social Security and Medicare taxes and should be detailed on Schedule H.
Keep in mind that only wages sent directly to the employee qualify. If a household worker is hired through an agency, and you pay the agency for their services, the agency is then responsible for the employment tax. Qualified household employee occupations include:
- Health Aids
- Private Nurses
- Yard workers
A Schedule H should be filed annually, along with the employer’s tax return. It only needs to be filed for years where payroll was processed for employees of a household employer.
When to file Form 941
Form 941 applies more to home-based businesses, not necessarily household employees. So, for example, if you run a landscaping business from your garage, you’ll want to fill out Form 941. Even though your employees are out and about mowing lawns and trimming hedges, the company is still based at your home so wages paid to those workers should be detailed on that form, not a Schedule H.
Form 941 is filed quarterly, regardless if payroll was processed during that time period. Failing to do so can result in penalties.
Important – Only report payroll once
Do not file a Schedule H if you have filed Form 941.
A common mistake that household employers make is reporting their payroll twice. This happens when both Schedule H and Form 941 are filed in the same year. Many business owners file Form 941 quarterly and report wages there. Then, when tax season rolls around they apply these same figures to Schedule H and, therefore, pay the employment tax twice.
Be careful not to make this mistake and avoid paying too much or becoming subject to an IRS investigation to resolve the issue.