Publication 926
Household Employer's Tax Guide
(Revised: 11/2002)

For Wages Paid in 2003

Federal Unemployment (FUTA) Tax

The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Like most employers, you may owe both the federal unemployment tax (the FUTA tax) and a state unemployment tax. Or, you may owe only the FUTA tax or only the state unemployment tax. To find out whether you will owe state unemployment tax, contact your state's unemployment tax agency. See the list of state unemployment agencies in the Appendix for the address.

The FUTA tax is 6.2% of your employee's FUTA wages. However, you may be able to take a credit of up to 5.4% against the FUTA tax, resulting in a net tax of 0.8%. Your credit for 2003 is limited unless you pay all the required contributions for 2003 to your state unemployment fund by April 15, 2004. The credit you can take for any contributions for 2003 that you pay after April 15, 2004, is limited to 90% of the credit that would have been allowable if the contributions were paid by April 15, 2004. (If you did not pay all the required contributions for 2002 by April 15, 2003, see Credit for 2002, later.)

Pay the tax as discussed under How Do You Make Tax Payments, later. Also, see What Forms Must You File, later.

Do not withhold the FUTA tax from your employee's wages. You must pay it from your own funds.

FUTA wages.   Figure the FUTA tax on the FUTA wages you pay. If you pay cash wages to household employees totaling $1,000 or more in any calendar quarter of 2003, the first $7,000 of cash wages you pay to each household employee in 2003 and 2004 is FUTA wages. (A calendar quarter is January through March, April through June, July through September, or October through December.) If your employee's cash wages reach $7,000 during the year, do not figure the FUTA tax on any wages you pay that employee during the rest of the year. For an explanation of cash wages, see the discussion on social security and Medicare wages, earlier.

If the cash wages you pay are less than $1,000 in each calendar quarter of 2003, but you had a household employee in 2002, the cash wages you pay in 2003 may still be FUTA wages. They are FUTA wages if the cash wages you paid to household employees in any calendar quarter of 2002 totaled $1,000 or more.

Wages not counted.   Do not count wages you pay to any of the following individuals as FUTA wages.

• Your spouse.
• Your child who is age 20 or younger.
• Your parent.

Example.   You hire a household employee (who is not related to you) on January 1, 2003, and agree to pay cash wages of $200 every Friday. During January, February, and March you pay the employee cash wages of $2,600. You pay cash wages of $1,000 or more in a calendar quarter of 2003, so the first $7,000 of cash wages you pay the employee (or any other employee) in 2003 or 2004 is FUTA wages. The FUTA wages you pay may also be subject to your state's unemployment tax.

During 2003, you pay your household employee cash wages of $10,400. You pay all the required contributions for 2003 to your state unemployment fund by April 15, 2004. Your FUTA tax for 2003 is $56 ($7,000 × 0.8%).

Credit for 2002.   The credit you can take for any state unemployment fund contributions for 2002 that you pay after April 15, 2003, is limited to 90% of the credit that would have been allowable if the contributions were paid on or before April 15, 2003.

You must complete Worksheet A to figure the credit for late contributions if you paid any state contributions after the due date for filing Form 1040.

Do You Need To Withhold Federal Income Tax?

You are not required to withhold federal income tax from wages you pay a household employee. You should withhold federal income tax only if your household employee asks you to withhold it and you agree. The employee must give you a completed Form W-4, Employee's Withholding Allowance Certificate.

If you and your employee have agreed to withholding, either of you may end the agreement by letting the other know in writing.

If you agree to withhold federal income tax, you are responsible for paying it to the IRS. Pay the tax as discussed under How Do You Make Tax Payments, later. Also, see What Forms Must You File, later.

Use the income tax withholding tables in Publication 15, Circular E, Employer's Tax Guide, to find out how much to withhold. Figure federal income tax withholding on wages before you deduct any amounts for other withheld taxes. Withhold federal income tax from each payment of wages based on the filing status and exemptions shown on your employee's Form W-4. Publication 15 contains detailed instructions.

Wages.   Figure federal income tax withholding on both cash and noncash wages you pay. Measure wages you pay in any form other than cash by the fair market value of the noncash item.

Do not count as wages any of the following items.

• Meals provided to your employee at your home for your convenience.
• Lodging provided to your employee at your home for your convenience and as a condition of employment.
• Up to $100 a month for 2002 (see Publication 15-B for the 2003 amount) for transit passes you give your employee or for any cash reimbursement you make for the amount your employee pays for transit passes used to commute to your home. A transit pass includes any pass, token, farecard, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train.
• Up to $185 a month for 2002 (see Publication 15-B for the 2003 amount) for the value of parking you provide your employee or for any cash reimbursement you make for the amount your employee pays for parking at or near your home or at or near a location from which your employee commutes to your home.

See Publication 15 for more information on cash and noncash wages.

Paying tax without withholding.   Any income tax you pay for your employee without withholding it from the employee's wages must be included in the employee's wages for federal income tax purposes. It also must be included in social security and Medicare wages and in federal unemployment (FUTA) wages.

What Do You Need To Know About the Earned Income Credit?

Certain workers can take the earned income credit (EIC) on their federal income tax return. This credit reduces their tax or allows them to receive a payment from the IRS. You may have to make advance payments of part of your household employee's EIC along with the employee's wages. You also may have to give your employee a notice about the EIC.

Advance EIC payments.   You must make advance EIC payments if your employee gives you a properly completed Form W-5, Earned Income Credit Advance Payment Certificate. Use the advance EIC payment tables in Publication 15, Circular E, Employer's Tax Guide, to find out how much to pay your employee.

Reduce the social security and Medicare taxes and withheld federal income tax you need to pay to the IRS by any advance EIC payments you make. See Publication 15 for more information about making advance EIC payments.

Notice about the EIC.   Copy B of the 2003 Form W-2, Wage and Tax Statement, has a statement about the EIC on the back. If you give your employee that copy by February 2, 2004 (as discussed under Form W-2, later), you do not have to give the employee any other notice about the EIC.

If you do not give your employee Copy B of the Form W-2, your notice about the EIC can instead be any of the following items.

1. A substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy B of the Form W-2.
2. Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC).
3. Your own written statement with the same wording as in Notice 797.

If a substitute Form W-2 is given on time but does not have the required EIC information, you must notify the employee within one week of the date the substitute Form W-2 is given. If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement about the 2003 EIC by February 2, 2004. If Form W-2 is not required, you must notify the employee by February 9, 2004.

You must give your household employee a notice about the EIC if you agree to withhold federal income tax from the employee's wages (as discussed under Do You Need To Withhold Federal Income Tax, earlier) and the income tax withholding tables show that no tax should be withheld. Even if not required, you are encouraged to give the employee a notice about the EIC if his or her 2003 wages are less than the EIC eligible maximum amount (see the Form W-5 instructions for the 2003 maximum amount).

How Do You Make
Tax Payments?

When you file your 2003 federal income tax return in 2004, attach Schedule H, Household Employment Taxes, to your Form 1040. Use Schedule H to figure your total household employment taxes (social security, Medicare, FUTA, and withheld federal income taxes). Add these household employment taxes to your income tax. Pay the amount due by April 15, 2004. (For more information about using Schedule H, see Schedule H under What Forms Must You File, later.)

You can avoid owing tax with your return if you pay enough tax during the year to cover your household employment taxes, as well as your income tax. You can pay the additional tax in any of the following ways.

• Ask your employer to withhold more federal income tax from your wages in 2003.
• Ask the payer of your pension or annuity to withhold more federal income tax from your benefits.
• Make estimated tax payments for 2003 to the IRS.
• Increase your payments if you already make estimated tax payments.

You may be subject to the estimated tax penalty if you did not pay enough income and household employment taxes during the year. (See Publication 505, Tax Withholding and Estimated Tax, for information about the penalty.) However, you will not be subject to the penalty if both of the following situations apply to you.

• You will not be subject to federal income tax withholding from your pay, pension, annuity, etc.
• You would not be required to make estimated tax payments if you did not owe household employment taxes.

Asking for more federal income tax withholding.   If you are employed and want more federal income tax withheld from your wages to cover your household employment taxes, give your employer a new Form W-4, Employee's Withholding Allowance Certificate. Complete it as before, but show the additional amount you want withheld from each paycheck on line 6.

If you receive a pension or annuity and want more federal income tax withheld to cover household employment taxes, give the payer a new Form W-4P, Withholding Certificate for Pension or Annuity Payments (or a similar form provided by the payer). Complete it as before, but show the additional amount you want withheld from each benefit payment on line 3.

Get Publication 919, How Do I Adjust My Tax Withholding, to make sure you will have the right amount withheld. It will help you compare your total expected withholding for 2003 with the combined income tax and employment taxes that you can expect to figure on your 2003 return.

Paying estimated tax.   If you want to make estimated tax payments to cover household employment taxes, get Form 1040-ES, Estimated Tax for Individuals. You can use its payment vouchers to make your payments by check or money order. You may be able to pay by direct debit (automatic withdrawal) or credit card. See the form instructions for details.

You can pay all the employment taxes at once or you can pay them in installments. If you have already made estimated tax payments for 2003, you can increase your remaining payments to cover the employment taxes. Estimated tax payments for 2003 are ordinarily due April 15, June 16, and September 15, 2003, and January 15, 2004.

Payment option for business employers.   If you own a business as a sole proprietor or your home is on a farm operated for profit, you can choose either of two ways to pay your 2003 household employment taxes. You can pay them with your federal income tax as described above, or you can include them with your federal employment tax deposits or other payments for your business or farm employees. For information on depositing employment taxes, see Publication 15.

If you pay your household employment taxes with your business or farm employment taxes, you must report your household employment taxes with those other employment taxes on Form 941 or Form 943 and on Form 940 (or 940-EZ). See Business employment tax returns, later.

The deduction that can be taken on Schedules C and F (Form 1040) for wages and employment taxes applies only to wages and taxes paid for business and farm employees. You cannot deduct the wages and employment taxes paid for your household employees on your Schedule C or F.

More information.   For more information about paying taxes through federal income tax withholding and estimated tax payments, and figuring the estimated tax penalty, get Publication 505, Tax Withholding and Estimated Tax.

What Forms Must You File?

You must file certain forms to report your household employee's wages and the federal employment taxes for the employee if you pay any of the following wages to the employee.

• Social security and Medicare wages.
• FUTA wages.
• Wages from which you withhold federal income tax.

The employment tax forms and instructions you need for 2003 will be sent to you automatically in January 2004 if you reported employment taxes for 2002 on Schedule H (Form 1040), Household Employment Taxes. Otherwise, for information on ordering these forms, see How To Get Tax Help, later.

Employer identification number (EIN).   You must include your employer identification number (EIN) on the forms you file for your household employee. An EIN is a 9-digit number issued by the IRS. It is not the same as a social security number.

You ordinarily will have an EIN if you previously paid taxes for employees, either as a household employer or as a sole proprietor of a business you own. If you already have an EIN, use that number.

If you do not have an EIN, get Form SS-4, Application for Employer Identification Number. The instructions for Form SS-4 explain how you can get an EIN immediately by telephone or in about 4 weeks if you apply by mail.

Form W-2.   File a separate 2003 Form W-2, Wage and Tax Statement, for each household employee to whom you pay either of the following wages during the year.

• Social security and Medicare wages of $1,400 or more.
• Wages from which you withhold federal income tax.

You must complete Form W-2 and give Copies B, C, and 2 to your employee by February 2, 2004. You must send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the Social Security Administration by March 1, 2004 (March 31, 2004, if you file your Form W-2 electronically).

Employee who leaves during the year.   If an employee stops working for you before the end of 2003, you can file Form W-2 and provide copies to your employee immediately after you make your final payment of wages. You do not need to wait until 2004. If the employee asks you for Form W-2, give it to him or her within 30 days after the request or the last wage payment, whichever is later.

Schedule H.   Use Schedule H (Form 1040), Household Employment Taxes, to report household employment taxes if you pay any of the following wages to the employee.

• Cash wages of $1,400 or more.
• FUTA wages.
• Wages from which you withhold federal income tax.

File Schedule H with your 2003 federal income tax return by April 15, 2004. If you get an extension to file your return, the extension also will apply to your Schedule H.

Filing options when no return is required.   If you are not required to file a 2003 tax return, you have the following two options.

1. You can file Schedule H by itself. See the Schedule H instructions for details.
2. If, besides your household employee, you have other employees for whom you report employment taxes on Form 941 or Form 943 and on Form 940 (or 940-EZ), you can include your taxes for your household employee on those forms. See Business employment tax returns, next.

Employers having the options listed above include certain tax-exempt organizations that do not have to file a tax return, such as churches that pay a household worker to take care of a minister's home.

Business employment tax returns.   Do not use Schedule H (Form 1040) if you choose to pay the employment taxes for your household employee with business or farm employment taxes. (See Payment option for business employers, earlier.) Instead, include the social security, Medicare, and withheld federal income taxes for the employee on the Form 941, Employer's Quarterly Federal Tax Return, you file for your business or on the Form 943, Employer's Annual Tax Return for Agricultural Employees, you file for your farm. Include the FUTA tax for the employee on your Form 940 (or 940-EZ), Employer's Annual Federal Unemployment (FUTA) Tax Return.

If you report the employment taxes for your household employee on Form 941 or Form 943, file Form W-2 for that employee with the Forms W-2 and Form W-3 for your business or farm employees.

For information on filing Form 941, get Publication 15. For information on filing Form 943, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Both of these publications also provide information about filing Form 940 (or 940-EZ).

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