November 16, 1994
New Law Eases Burden for Household Employers
Recently enacted law changes mean that many household employers
who previously were required to file quarterly reports with the IRS
will no longer have to report employment taxes for their household
Before these changes, anyone who paid a household employee
wages of more than S50 in a quarter was required to file a quarterly
report and pay Social Security and Medicare taxes on those wages.
The quarterly filing and payment requirements have been eliminated
by the new law, and the $50 per quarter threshold has been raised to
$1,000 per year (an amount that will be indexed for inflation
beginning in 1996).
Because the $1,000 threshold is effective for the entire 1994
year, household employers and their employees who paid Social
Security and Medicare taxes on 1994 employee wages of less than
$1,000 are eligible for refunds. Employers can obtain their refunds
with interest by filing Form 843, "Claim for Refund and Request for
Abatement." Alternatively, employers who file a fourth quarter Form
942, "Employer's Quarterly Tax Return for Household Employees, " can
reduce their liability on that return by the amount of any overpaid
household employment taxes. In December, the fourth-quarter Form 942
package will be mailed to employers; this package will contain
special instructions and a simplified version of the Form 843 for
use in claiming refunds.
Employees should request reimbursement from their employers for
any Social Security and Medicare taxes withheld from their pay
However, employees who are unable to obtain refunds of these taxes
from their employers can obtain them by filing the Form 843 and
attaching a copy of their Form W-2, "Wage and Tax Statement "
Employees can obtain a simplified version of the Form 843 after
January 1 by calling 1-800-TAX-FORM Also, Publication 926,
"Employment Taxes for Household Employers," and Publication 553,
"Highlights of 1994 Tax Changes," will provide more details on how
employees can file for their refunds.
Employees who receive refunds will nevertheless receive Social
Security wage credits on their 1994 wages To ensure proper posting
of these credits, the new law requires employers, for 1994 only, to
issue a Form W-2 to household employees who were paid more than $50
in any quarter The fourth-quarter 942 package and Publication 926
will contain special instructions for preparing these Form W-2s.
Effective in 1995, the law exempts household employment by
workers under the age of 18 from any Social Security and Medicare of
how much they earn, unless household employment is the worker's
For 1994, household employers must continue to file the
quarterly Forms 942 for any household employees earning more than
the new $1000 threshold. For the 1995 tax year, however, household
employers will use their Form 1040 income tax returns to report
Social Security, Medicare, and Federal Unemployment (FUTA) taxes, as
well as any income taxes withheld, for their household employees.
The IRS will be developing a new schedule for reporting these taxes
on the 1995 Form 1040.
While the new law simplifies the reporting and payment of
household FUTA tax by permitting it to be reported on the employer's
Form 1040 beginning in 1995, it does not affect the wage thresholds
for determining an employer's liability for FUTA. Household
employers also need to keep in mind that the new law does not
directly affect any state unemployment tax filing requirements;
thus, household employers may still be subject to quarterly filing
requirements for these state taxes.
Finally, under the new law, household employers are not
required to make household employee Social Security, Medicare, and
FUTA tax payments throughout the year until 1998. They are
encouraged, however, to either increase their withholding or make
estimated payments to avoid when they file their income tax returns.
Beginning in 1998, withholding or estimated tax payments must be
sufficient to cover these taxes; underpayments beginning in 1998
could be subject to estimated tax penalties.
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