For many Americans, their place of business is inside someone else’s home. Domestic workers like landscapers, pool maintenance staff or babysitters are commonly required to be at a residence in order to earn their wages. Or they might work for a company run out of their boss’s home. If you employ people inside of your home, you are responsible for several tax-related items.
All employers are required to pay the same employment taxes, whether it’s a commercial business with a global workforce in the thousands or a homeowner paying a housekeeper that visits once a week.
When to file Schedule H
While both Schedule H and Form 941 capture payroll information to determine your employment tax liability, they’re not interchangeable.
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 identified by the IRS include:
- Health Aids
- Private Nurses
- Yard workers
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.
How often to file Schedule H vs. Form 941
Schedule H is to be filed annually, along with the employer’s tax return. Form 941, however, is filed quarterly. Schedule H must only be filed for years where payroll was processed for employees of a household employer. Contrarily, Form 941 must be filed each quarter, regardless if payroll was processed during that time period. Failing to do so can result in penalties.
Avoid reporting twice
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.
How TaxSlayer can help household employers
By filing your income tax returns with TaxSlayer’s suite of products and qualified support professionals, you can rest assured that all of the necessary forms and calculations will be filled out correctly. Not only will we work with you to minimize your tax liability and maximize your refunds, but we have an accuracy guarantee that waives your liability in the case of any errors or penalties.
We’ll help make sure that everything remains compliant so that you can spend your time growing your business, not worrying and filing taxes.