For payroll compliance (annually licensed)
Federal tax withholding and payment requirements for clients who are household employers vary based on a number of factors, including how much the household employees are paid, the type of employer, and whether or not employer and employee have an agreement for withholding federal income taxes (FIT). This topic is intended to define the terms household employees and household employers and to guide you through some potential client and employee setup scenarios.
note
Accounting CS doesn't support the preparation of Form 1040, Schedule H. You can prepare and submit this form in UltraTax CS.
Setup options and scenarios
The setup needed for your household employers and employees depends on the specific circ*mstances for each client and employee. Use the following decision tree to determine which setup scenarios are for your clients.
Does the employer pay the employee cash wages that are more or less than the amounts specified in Table 1 of IRS Publication 926?
(Those amounts will differ from year to year.)
Setup 1 scenario
The employer is
not
required to report or pay any tax liability for the employee and doesnot
need to issue a Form W-2.In general, set up the employee as usual (see theEmployee setup, overview).
In the
Main
tab of the Employees screen, selectHousehold
as the Employee type.In the
Payroll Taxes
tab of the Employee screen, select theWage Exempt
checkbox for the following federal taxes:FICA-SS (EE)
FICA-SS (ER)
FICA-MED (EE)
FICA-MED (ER)
FUTA
FIT
Setup 2 scenario
The employer does not calculate any taxes, but just in case the employees cross the FICA and FUTA thresholds, this setup option enables you to stop tax calculation on the payroll checks themselves, but continues to track taxable wages for all taxes.
In general, set up the employee as usual (see theEmployee setup, overview).
In the
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tab of the Employees screen, be sure to selectHousehold
as the Employee type.In the
Payroll Taxes
tab of the Employee screen, mark theFederal tax exempt
checkbox in the Federal Withholding section.Mark the
FICA tax exempt
and theFUTA tax exempt
checkboxes in the Other Federal Settings section.
At year end, if employees are under the threshold as anticipated, you canmake taxable wage adjustmentsto reduce the taxable wages for the employees.
Setup 3 scenario
The employer does calculate FICA and FUTA taxes, but does not withhold federal withholding for the employee.
In general, set up the employee as usual (see theEmployee setup, overview).
In the
Main
tab of the Employees screen, be sure to selectHousehold
as the Employee type.In the
Payroll Taxes
tab of the Employee screen, mark theFederal tax exempt
checkbox in the Federal Withholding section.
In this example, only the Federal tax exempt checkbox is marked, because the application you'll need calculate all other taxes for an employee that will meet both the FICA and the FUTA threshold requirements.
Setup 4 scenario
The employer needs to calculate FICA and FUTA taxes and withholds federal withholding for the employee.
In general, set up the employee as usual (see theEmployee setup, overview).
In the
Main
tab of the Employees screen, be sure to selectHousehold
as the Employee type.
No additional changes need to be made to the
Payroll Taxes
tab, because the application will automatically calculate and withhold FICA, FUTA, and federal withholding as required.Setup 5 scenario
The employer does calculate FICA and FUTA taxes, but doesn’t withhold federal withholding. In addition, the employer pays the employee portion of FICA.
Select
Setup
, thenPayroll Items
and, in theMain
tab, add a pay itemEmployee FICA Reimbursem*nt
(or whatever description you select).In the
Calculation type
box, select anFixed
amount.Select the
Tax Exemptions
tab and select theAll
checkbox, which will selectallfederal, state, and local taxes as exempt.Clear the
Federal Income Tax
checkbox in the Federal section, making this pay item taxable for federal income tax only.Save the new pay item.
In general, set up the new employee as usual (see theEmployee setup, overview).
In the
Main
tab of the Employees screen, be sure to selectHousehold
as the Employee type.In the
Payroll Items
tab, select the checkboxes for any pay items that you will use to pay this household employee and select the newEmployee FICA Reimbursem*nt
pay item that you added.In the
Payroll Taxes
tab, select theFederal tax exempt
checkbox in the Federal Withholding section.When you enter checks for the household employee, enter the hours or salary amounts using their regular pay items to have the application calculate FICA and other tax amounts.
Manually override the amount of the
Employee FICA Reimbursem*nt
pay item with the total amount of the employee FICA-SS and FICA-MED. This will increase the federal income taxable wages by the amount of the reimbursed FICA. The application will display that amount in Box 1 of the Form W-2.
Setup 6 scenario
The employer calculates FICA, FUTA, and federal withholding taxes. In addition, the employer pays the employee portion of FICA, and the employer and employee have reached an agreement for the Employer to withhold FIT.
Select
Setup
, thenPayroll Items
.On theMain tab, add a pay item
Employee FICA Reimbursem*nt
(or whatever description you select).In the
Calculation type
box, selectFixed
amount.Select the
Tax Exemptions
tab and select theAll
checkbox, which will selectallfederal, state, and local taxes as exempt.Clear the
Federal Income Tax
checkbox in the Federal section, making this pay item taxable for federal income tax only.Save the new pay item.
In general, set up the new employee as usual (see theEmployee setup, overview).
In the
Main
tab of the Employees screen, be sure to selectHousehold
as the Employee type.In the
Payroll Items
tab, select the checkboxes for any pay items that you will use to pay this household employee and select the newEmployee FICA Reimbursem*nt
pay item that you added.When you enter checks for the household employee, enter their hours or salary amounts using their regular pay items to have the application calculate FICA and other tax amounts.
Manually override the amount of the
Employee FICA Reimbursem*nt
pay item with the total amount of the employee FICA-SS and FICA-MED. This will increase the federal income taxable wages by the amount of the reimbursed FICA. The application will display that amount in Box 1 of the Form W-2 and will display the FIT amount in Box 2.
Setup 7 scenario
The employer
calculates and pays
FICA, FUTA, and federal withholding taxes for the employee.The application doesn’t currently support this setup scenario.
Definitions
Household employees
Refer to IRS rules to determine whether or not an employee is a household employee, but
household work
generally refers to work done by the following types of workers.Babysitters or nannies
Caretakers
House cleaning workers or housekeepers
Domestic workers
Drivers
Health aides or private nurses
Yard workers
Household employers
There are two types of household employers, and they have different options for reporting tax information and making payments.
Employers who have no other businesses
. These employers:You'll need apply for an EIN to use for reporting via Form W-2s.
You'll need make tax payments using their Social Security number rather than the EIN and include payments as part of their estimated tax payments.
Can pay taxes along with income taxes on Schedule H.
Can pay estimated taxes throughout the year and file Schedule H with their income taxes.
Sole proprietors, farm owners, and certain non-profits
. These employers can file and pay using the same options as employers who have no other businesses. But in addition, these employers:Can select to include household employee tax payments on their business 94x forms.
Can include household W-2 forms along with their business W-2 forms when reporting tax payments on business 94x forms.
Internal use only
The note underneath the opening paragraph links to an UltraTax topic, and the link will need to be updated each year to change the year in the file name, so it links to the most current version.
