The Importance of Household Employee Tax Compliance

Many households hire employees such as nannies, housekeepers, caregivers, or gardeners. While this provides convenience and support, it also carries specific tax obligations. Household employers must understand federal income tax withholding, Social Security, Medicare, and unemployment taxes. At Z Tax & Accounting, we help clients correctly report household employee taxes using Schedule H and stay compliant with federal and state laws.

1. Who Is Considered a Household Employee?

A household employee is anyone hired to perform household work for your home if you control what work is done and how it is performed. Common examples include:

• Nannies and babysitters
  
  

• Housekeepers and maids
  
  

• Caregivers for elderly or disabled family members
  
  

• Lawn care or gardening staff employed directly by the household
  
  

Important distinction: Independent contractors are not household employees. The IRS uses control and work relationship tests to determine this status.

2. Tax Obligations for Household Employers

Employers of household staff are responsible for the following taxes:

Social Security and Medicare Taxes

• Household employers must withhold and match FICA taxes (6.2% Social Security + 1.45% Medicare) if the employee earns above the IRS threshold.
  
  

Federal Income Tax Withholding

• Optional but allowed if agreed upon by the employee and documented.
  
  

Federal Unemployment Tax (FUTA)

• Employers pay FUTA for eligible household employees, which provides unemployment benefits.
  
  

State and Local Taxes

• Many states require unemployment insurance and may have additional withholding or reporting requirements.
  
  

3. Reporting Household Employee Taxes with Schedule H

Schedule H is used to report household employment taxes on your individual income tax return (Form 1040).

Key points about Schedule H:

• Included Taxes: Social Security, Medicare, FUTA, and any withheld federal income tax.
  
  

• Filing Requirements: Employers who paid a household employee $2,600 or more in 2025 (threshold may change annually) must file Schedule H.
  
  

• Simplified Payment Options: Taxes can be paid via IRS EFTPS or payroll services.
  
  

At Z Tax & Accounting, we help clients correctly fill out Schedule H, calculate amounts due, and avoid penalties.

4. Deductibility and Benefits

Certain household employee costs may be partially deductible:

• Child and Dependent Care Tax Credit: A portion of nanny or caregiver wages may qualify for tax credits.
  
  

• Flexible Spending Accounts (FSAs): Some expenses can be paid with pre-tax funds for qualifying care.
  
  

5. Common Household Employer Mistakes

1. Misclassifying employees as independent contractors.
   
   

2. Failing to withhold Social Security, Medicare, or FUTA taxes.
   
   

3. Not filing Schedule H when required.
   
   

4. Ignoring state or local tax obligations.
   
   

5. Forgetting to provide W-2s to household employees.
   
   

How Z Tax & Accounting Helps Household Employers

At Z Tax & Accounting, we provide full support for household employers:

• Accurate Payroll and Withholding Calculations – Ensure Social Security, Medicare, and FUTA taxes are correctly calculated.
  
  

• Schedule H Preparation – File household employment taxes correctly with your Form 1040.
  
  

• W-2 Preparation – Issue W-2s to household employees and file with the SSA.
  
  

• State Compliance – Manage state unemployment and income tax requirements.
  
  

• Tax Planning Advice – Explore deductions, credits, and retirement options for household staff.
  
  

With professional guidance, employers can avoid costly penalties and streamline their household employee management.

Conclusion: Compliant and Stress-Free Household Employment

Hiring household employees comes with responsibilities, but understanding your tax obligations makes the process easier. Schedule H simplifies federal reporting, and professional support ensures compliance with all federal and state requirements. Z Tax & Accounting specializes in helping households manage employee taxes efficiently while maximizing available benefits.

Contact Z Tax & Accounting today for personalized guidance on household employment taxes.