Taxpayers utilizing household worker(s)1 may incur tax liability related to the performed services. To determine whether a particular situation gives rise to taxation, employing taxpayers should consult Schedule H. As explained by Schedule H, household employee taxation will only arise if any of the following apply:
-Taxpayer paid any one household employee wages of $1,800 or more in 2012 (do not count amounts paid to an employee who was under age 18 at any time in 2012 and was a student)
-Taxpayer withheld federal income tax during 2012 at the request of any household employee.
-Taxpayer paid total wages of $1,000 or more in any calendar quarter of 2011 or 2012 to household employees.
If any of the three above scenarios apply, the taxpayer should complete the Schedule H and transfer the Line 24 value (household employment taxes) on Line 59a of Form 1040.
Defining “household employee”: Generally speaking, when a household worker is controlled or directed by the homeowner in regards to their work method, that worker is deemed an employee by the IRS. Contrarily, a worker who maintains autonomy over the manner in which the work will be completed does not give rise to household employment tax. Consider a housekeeper scenario. Imagine the housekeeper works 40-hours/week maintaining the taxpayer’s property, lives on-site, and attends the taxpayer’s family functions. Here, the IRS is likely to treat the “maid” as a household employee. On the other hand, if the housekeeper is employed by a separate company and cleans several other homes in addition to the taxpayer’s, the IRS will not require the taxpayers to pay household employment taxes.
1includes babysitters, nannies, health aides, maids, yard workers, and any other worker performing duties in or around the taxpayer’s home
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