Setting up household employees

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Our Support department is closed on Friday, April 28th for a company event. However, limited Accounting CS phone support is available on that date from 9 AM - 5 PM ET due to the approaching deadline for quarterly payroll tax forms.

Links to our most popular payroll tax processing topics are available in the Alerts and notices section on the right side of most pages.

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 does not support the preparation of Form 1040, Schedule H. You can prepare and submit this form in UltraTax CS. For more information, see Screen H - Household Employment Taxes (1040).

Setup options and scenarios

The setup needed for your household employers and employees depends on the specific circumstances for each client and employee. Use the following decision tree to determine which setup scenarios are applicable 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.)

The employer is not required to report or pay any tax liability for the employee and does not need to issue a Form W-2.

  1. In general, set up the employee as usual (see the Employee setup, overview).
  2. In the Main tab of the Employees screen, be sure to select Household as the Employee type.
  3. In the Payroll Taxes tab of the Employee screen, mark the Wage Exempt checkbox for the following federal taxes:
    • FICA-SS (EE)
    • FICA-SS (ER)
    • FICA-MED (EE)
    • FICA-MED (ER)
    • FUTA
    • FIT

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.

  1. In general, set up the employee as usual (see the Employee setup, overview).
  2. In the Main tab of the Employees screen, be sure to select Household as the Employee type.
  3. In the Payroll Taxes tab of the Employee screen, mark the Federal tax exempt checkbox in the Federal Withholding section.
  4. Mark the FICA tax exempt and the FUTA tax exempt checkboxes in the Other Federal Settings section.

At year end, if employees are under the threshold as anticipated, you can make taxable wage adjustments to reduce the taxable wages for the employees.

The employer does calculate FICA and FUTA taxes, but does not withhold federal withholding for the employee.

  1. In general, set up the employee as usual (see the Employee setup, overview).
  2. In the Main tab of the Employees screen, be sure to select Household as the Employee type.
  3. In the Payroll Taxes tab of the Employee screen, mark the Federal tax exempt checkbox in the Federal Withholding section.

In this example, only the Federal tax exempt checkbox is marked, because the application must calculate all other taxes for an employee that will meet both the FICA and the FUTA threshold requirements.

The employer needs to calculate FICA and FUTA taxes and withholds federal withholding for the employee.

  1. In general, set up the employee as usual (see the Employee setup, overview).
  2. In the Main tab of the Employees screen, be sure to select Household 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.

The employer does calculate FICA and FUTA taxes, but does not withhold federal withholding. In addition, the employer pays the employee portion of FICA.

  1. Choose Setup > Payroll Items and, in the Main tab, add a pay item called Employee FICA Reimbursement (or whatever description you choose).
  2. In the Calculation type field, select Fixed amount.
  3. Click the Tax Exemptions tab and mark the All checkbox, which will select all federal, state, and local taxes as exempt.
  4. Clear the Federal Income Tax checkbox in the Federal section, making this pay item taxable for federal income tax only.
  5. Save the new pay item.
  6. In general, set up the new employee as usual (see the Employee setup, overview).
  7. In the Main tab of the Employees screen, be sure to select Household as the Employee type.
  8. In the Payroll Items tab, mark the checkboxes for any pay items that you will use to pay this household employee and mark the new Employee FICA Reimbursement pay item that you added.
  9. In the Payroll Taxes tab, mark the Federal tax exempt checkbox in the Federal Withholding section.
  10. 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.
  11. Manually override the amount of the Employee FICA Reimbursement 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.

The employer does calculate 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.

  1. Choose Setup > Payroll Items and, in the Main tab, add a pay item called Employee FICA Reimbursement (or whatever description you choose).
  2. In the Calculation type field, select Fixed amount.
  3. Click the Tax Exemptions tab and mark the All checkbox, which will select all federal, state, and local taxes as exempt.
  4. Clear the Federal Income Tax checkbox in the Federal section, making this pay item taxable for federal income tax only.
  5. Save the new pay item.
  6. In general, set up the new employee as usual (see the Employee setup, overview).
  7. In the Main tab of the Employees screen, be sure to select Household as the Employee type.
  8. In the Payroll Items tab, mark the checkboxes for any pay items that you will use to pay this household employee and mark the new Employee FICA Reimbursement pay item that you added.
  9. 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.
  10. Manually override the amount of the Employee FICA Reimbursement 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.

The employer calculates and pays FICA, FUTA, and federal withholding taxes for the employee.

The application does not currently support this setup scenario.

Definitions

Household employees

You should 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.

Household employers

There are two types of household employers, and they have different options for reporting tax information and making payments.

Internal notes


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. - amh.

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