Step 6: Filing Reports and Paying the Government

Filing Schedule H and Paying the Federal Government

Typically, household employers are required to report to the federal government once a year at tax time (April 15th) by filing a Schedule H (Household Employment Taxes) with their own income tax returns. The Schedule H lists the federal employment taxes you withheld or owe for the relevant tax year. Employment taxes may include FICA, and federal income tax withholding, your employer's share of FICA, and your FUTA liability. You add all your employment tax liability reflected on your Schedule H to your Form 1040 or 1040A, and pay it as part of your federal income tax liability. If you also have other employees who work for you in your business, see the Rules for Business Employers section for other payment options. See Publication 926 for more information on making your federal tax payments.

A word of caution is necessary. Changes in federal law over the past several years have eliminated some of the paperwork burden on household employers. Filing federal quarterly employment tax returns, for example, is no longer required for household employers. If you are interested in a brief historical perspective on these legal changes, see Nanny Tax Laws: A Short History. Although, the paperwork burden is no longer as great, you must remember that your increased household employment tax liability may require you to increase your own withholding, make quarterly estimated tax payments to cover your increased liability, or risk being assessed a penalty for underpayment of taxes. So much for tax law simplification! You should consult with your tax professional to determine your appropriate tax payment plan.

Filing Quarterly Reports and Paying Your State Government

While the IRS has simplified the federal reporting and payment provisions for household employers, there has been little simplification at the state level. Most states have an income tax, and generally require you to withhold it from your employee’s pay. You may also have to withhold or pay contributions to your state unemployment or workers' disability insurance funds. Unfortunately, there is no standard state reporting forms so you will have to inquire with your state revenue department to learn about reporting procedures and the appropriate forms to file. You should also check with your state's labor department, which typically requires employers to pay or collect other state employment taxes or carry workers' compensation insurance. That department may also have its own reporting procedures. Most states still require quarterly reporting and payment of state income and other taxes. Some states make an exception for household employers and permit them to report on an annual basis. A listing of state addresses, telephone numbers, and web sites may be found in the State Withholding and State Unemployment Tax Agencies sections. Please check with your state's department for more information.

The Federal Insurance Contributions Act (FICA) provides for a federal system of old age, retirement, disability, and health benefits for workers and their families. This system is financed through Social Security and Medicare taxes. You and your household employee pay equal amounts for these taxes.

For Social Security, the tax rate is 6.2% each for you and, for 2012, 4.2% for your household employee on the first $110,100 of wages. For Medicare, the rate is 1.45% each on all wages. If you do not deduct your household employee's share from his or her wages, you must pay the household employee's share of this tax as well as your share (a total of 10.4% for Social Security and 2.9% for Medicare). NannyPay automatically calculates the amount of FICA taxes you must withhold from your household employee's pay.

The Federal Unemployment Tax Act, also known as FUTA, together with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and state unemployment tax.

Those employers who pay their nannies $1,000 or more in any quarter are responsible for paying FUTA. FUTA taxes for calendar year 2011 will be calculated using two rates: 6.2% of taxable wages paid through June 30, 2011; and 6.0% of taxable wages paid after June 30, 2011, including 2012.

This tax is only paid by you; you do not withhold any part of it from your household employee's wages. You may be able to take a credit if you made contributions to your state unemployment compensation system. But to do so, you generally must pay all the required contributions for the current tax year to your state unemployment fund by April 15 of the following year.

You really do not need to worry about FUTA until the end of the year. Your portion of FICA and FUTA, as well as the amounts you withheld from your household employee's pay throughout the year, are paid by you to the IRS annually by completing Schedule H, which you will file along with your personal income tax return. See "Paying the Government" for more information.