Household Employees Fact Sheet

Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee, including a “nanny” who cares for your children or caregiver for an elder. Repairmen, plumbers, contractors, and other business people who provide their services as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but also how they do it.

Is the Employee Eligible for Employment in the U.S?

When you hire a household employee to work for you on a regular basis, you and the employee must complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. No later than the first day of work, the employee must complete the employee section of the form by providing certain required in-formation and attesting to his or her current work eligibility status in the United States. You must complete the employer section by examining documents presented by the employee as evidence of his or her identity and employment eligibility. Acceptable documents to establish identity and employment eligibility are listed on Form I-9. You should keep the completed Form I-9 in your own records. Don’t submit it to the IRS, the USCIS, or any other government or other entity. The form must be kept available for review upon notice by an authorized U.S. Government official.

For more information on completing Form I-9, see M-274, Handbook for Employers, published by USCIS. You can get Form I-9 and the USCIS Handbook for Employers by visiting the USCIS website at scis.gov/i-9-central. You can also call the USCIS at 1-800-870-3676 to order the Handbook for Employers. If you have questions about the employment eligibility verification process or other immigration-related employment matters, contact the USCIS Office of Business Liaison at 1-800-357-2099.

Federal Unemployment Tax Act (FUTA)

If you pay cash wages to household employees totaling more than $1,000 in any calendar quarter during the calendar year or the prior year, you generally must pay federal unemployment tax (FUTA) tax on the first $7,000 of cash wages you pay to each household employee. The FUTA tax is 6.0% of your employee’s FUTA wages. However, you may be able to take a credit of up to 5.4% against the FUTA tax, resulting in a net tax rate of 0.6%. If you paid wages that are subject to the unemployment compensation laws of a credit reduction state, your FUTA tax credit may be reduced. A state that hasn’t repaid money it borrowed from the federal government to pay unemployment benefits is a “credit reduction state.” See the Form 1040, Schedule H Instructions or search “employers in credit reduction states” on IRS.gov for more information. For specific dollar amounts and wages not counted, look under the heading “Do You Need To Pay Employment Taxes?” in Publication 926 (PDF).

Social Security and Medicare Taxes (Federal Insurance Contributions Act – FICA)

If you pay cash wages of $2,000 or more for 2017 (this threshold will change from year to year to consider inflation) to any one household employee, you theoretically must withhold 6.2% of social security and 1.45% of Medicare taxes (for a total of 7.65%) from all cash wages you pay to that employee. You also must pay your share of social security and Medicare taxes, which is also 7.65% of cash wages. (Cash wages include wages you pay by check, money order, etc.) If you prefer to pay your employee’s share of social security and Medicare taxes from your own funds, you don’t need to withhold 7.65% from cash wage payments you make. If you pay your employee’s share of social security and Medicare taxes from your own funds, the amounts you pay for your employee count as wages for purposes of the employees’ income tax. However, don’t count them as social security and Medicare wages or as wages for federal unemployment tax.

Don’t withhold or pay FUTA, social security and Medicare taxes from wages you pay to:

  1. 1. Your spouse,
  2. 2. Your child who is under age 21,
  3. 3. Your parent, unless an exception is met, or
  4. 4. An employee who is under age 18 at any time during the year, unless performing household work is the employee’s principal occupation. If the employee is a student, providing household work isn’t considered to be his or her principal occupation.

Additional Medicare Tax

Additional Medicare Tax applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. Employers are responsible for withholding the 0.9% Additional Medicare Tax on an individual’s wages paid in excess of $200,000 in a calendar year, without regard to filing status. An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. There’s no employer match for Additional Medicare Tax. For more information, visit Questions and Answers for the Additional Medicare Tax.

Federal Income Tax Withholding

You’re not required to withhold federal income tax from wages you pay to a household employee. However, if your employee asks you to withhold federal income tax and you agree, you’ll need a completed Form W-4 (PDF), Employee’s Withholding Allowance Certificate from your employee. See Publication 15, (Circular E), Employer’s Tax Guide, for tax withholding tables that are updated each year.

Schedule H (Form 1040), Household Employment Taxes

If you pay wages subject to FICA tax, FUTA tax, or if you withhold federal income tax from your employee’s wages, we’ll need to file a Form 1040, Schedule H, Household Employment Taxes. We’ll include Schedule H with your individual income tax return, Form 1040, U.S. Individual Income Tax Return. If you’re not required to file a return, you must still file Schedule H to report household employment taxes. However, a sole proprietor who must file Form 940 (PDF), Employer’s Annual Federal Unemployment (FUTA) Tax Return, and Form 941 (PDF), Employer’s QUARTERLY Federal Tax Return, or Form 944 (PDF), Employer’s ANNUAL Federal Tax Return, for business employees, or Form 943 (PDF), Employer’s Annual Federal Tax Return for Agricultural Employees, for farm employees, may report household employee tax information on these forms instead of on Schedule H. If you choose to report the wages for a household employee on the forms shown above, be sure to pay any taxes due by the date required based on the form, making federal tax deposits if required. Additional information is available in the Form 1040, Schedule H Instructions.

Estimated Tax Payments

If you file Form 1040, Schedule H, you can avoid owing taxes with your return if you pay enough tax before you file your return to cover both the employment taxes for your household employee and your income tax. If you’re employed, you can ask your employer to withhold more federal income tax from your wages during the year. You can also make estimated tax payments to the IRS during the year using Form 1040-ES, Estimated Tax for Individuals. You may have to pay an estimated tax underpayment penalty if you don’t pay your household employment taxes during the year.

Form W-2, Wage and Tax Statement

If you withhold and pay social security and Medicare taxes, or if you withhold federal income tax, we’ll need to complete a number of tax forms. At the end of the year, we prepare Form W-2 (PDF), Wage and Tax Statement, for each employee, Form W-3 (PDF), Transmittal of Wage and Tax Statement. To complete Form W-2, we’ll an employer identification number (EIN) and your employees’ social security numbers. If you don’t have an EIN, we can apply for one on your behalf.

California Payroll Taxes

A household employer must report when he/she employs one or more individuals to perform work and pays cash wages of $750 or more in a calendar quarter. Cash wages include both checks and cash. Do not include noncash wages, such as meals and lodging, when calculating whether you have reached $750 in cash wages. Once subject, a household employer must register with the EDD within 15 days after paying $750 in total cash wages. You will need to withhold and pay State Disability Insurance (SDI) on the total cash, meals, and lodging, but you will not be required to pay Unemployment Insurance (UI) or Employee Training Tax (ETT). SDI is paid at a rate of 0.9 percent or the first $110,902 of wages per employee, per year.

If you may more than $1,000 in cash in a calendar quarter, you must report wages, withhold SDI, and pay UI and ETT on the total cash, meals, and lodging provided to the household employee. UI is payable by the employer on the first $7,000 per year of each of employee’s wages at a rate of 3.4 percent for the first 2-3 years. After that, if the employer has a favorable experience rate of unemployment insurance benefit applications, the rate should be reduced. ETT is paid at a rate of 0.1 percent of the first $7,000 of each employee’s wages.

Household employers are required to file an Employer of Household Worker(s) Quarterly Report of Wages and Withholding (DE 3BHW) each quarter and an Employer of Household Worker(s) Annual Payroll Tax Return (DE 3HW) annually. The DE 3BHW is used to report employee quarterly wages subject to Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI) taxes, and Personal Income Tax (PIT) wages. If PIT is withheld, that amount is also reported on this form. Even though taxes are paid just once a year, wages must be reported each quarter by state law. For any quarter that you do not have wages, you must still file the report. The DE 3HW is used by household employers who elect to pay taxes annually. The DE 3HW is used to send UI, ETT, and SDI withheld to the EDD. If Personal Income Tax (PIT) is withheld, that amount is also sent to the EDD with this form. If your total accumulated wages exceed $20,000 during the year, you must notify the EDD immediately that you need to change to a quarterly household employer.

Although state law requires registered employers to report wages paid to household employees as “PIT Wages” on the quarterly wage, it does not require them to withhold PIT from their employees’ wages. However, if you and your employee mutually agree, PIT may be withheld under a voluntary withholding agreement and then reported and paid to the EDD. When the employee and employer agree to voluntary PIT withholding, the withholding should be made from all remuneration reportable as PIT wages. If you and your employee agree to withhold PIT from earnings, the employee must complete a federal Employee’s Withholding Allowance Certificate, Form W-4, or the EDD’s Employee’s Withholding Allowance Certificate, DE 4, to establish the worker’s marital status and the appropriate number of withholding allowances.

Under the voluntary withholding agreement, the employer should include the value of meals and lodging, unless furnished for the employer’s convenience and on the employer’s premises. If more than half the employees receive meals that are for the convenience of the employer, then all meals furnished by the employer are considered furnished for the employer’s convenience and are therefore not subject to voluntary PIT withholding or reportable as PIT wages. If fewer than half the employees receive meals that are for the convenience of the employer, then only those meals actually provided for the employer’s convenience would be exempt from voluntary PIT withholding and not reportable as PIT wages. Lodging is not subject to PIT if the employee must live at the place provided by the employer to qualify for employment. Even if meals and lodging are exempt from PIT withholding because they are furnished for the employer’s convenience, on the employer’s premises, and/or as a condition of employment, they are still subject to SDI, UI, and ETT.

Meals & Lodging

The taxable value of meals and lodging should not be less than the reasonable estimated value stipulated by the contract of employment or in a union agreement. If the cash value is not stipulated in the hiring contract or union agreement, the taxable value is established by regulation:

Year 3 Meals per day Breakfast Lunch Dinner Unidentified
2017 $11.50 $2.35 $3.55 $5.60 $4.15
2016 $11.40 $2.35 $3.50 $5.55 $4.10

Lodging: The taxable value of lodging is 66 2/3 percent of the ordinary rental value to the general public up to a maximum per month and not less than a minimum value per week.

Year Maximum per month Minimum per week
2017 $1,387 $45.00
2016 $1,332 $43.20

Additional Information

For more information, contact us at 415-956-5700 or nick@tarlson.com.