 pay the employee cash wages of $2,600. Because you pay cash wages of $1,000 or more in a calendar quarter of 2014, the first $7,000 of cash wages you pay the employee (or any other employee) in 2013 or 2014 is FUTA wages. The FUTA wages you pay may also be subject to your state's unemployment tax.
During 2014, you pay your household employee cash wages of $10,400. You pay all the required contributions for 2014 to your state unemployment fund by April 15, 2015. Your FUTA tax for 2014 is $42 ($7,000 x 0.6%).
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 agree to withhold federal income tax, you are responsible for paying it to the IRS.
You figure federal income tax withholding on both cash and non-cash wages you pay. Measure wages you pay in any form other than cash by the value of the non-cash item.
Do not count as wages any of the following items:
- Meals provided at your home for your convenience.
- Lodging provided at your home for your convenience and as a condition of employment.
- Up to $130 a month in 2014 for bus or train tokens (passes) you give your employee, or for any cash reimbursement you make for the amount your employee pays to commute to your home by public transit.
- Up to $250 a month in 2014 for the value of parking you provide your employee at or near your home or at or near a location from which your employee commutes to your home.
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 is also counted as Social Security and Medicare wages and as federal unemployment (FUTA) wages.
Certain workers can take the earned income tax credit (EIC) on their federal income tax return. This credit reduces their tax or allows them to receive a payment from the IRS if they do not owe tax. 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.
Notice about the EIC
The employee's copy (Copy B) of the IRS 2013 Form W-2, Wage and Tax Statement has a statement about the EIC on the back.
Tip: If you give your employee that copy by January 31, 2014 (as discussed under Form W-2), you do not have to give the employee any other notice about the EIC.
Otherwise, you must give your household employee a notice about the EIC only if you agree to withhold federal income tax from the employee's wages but 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 2013 wages are less than the amount shown in the instructions to 2014 Form W-5.
If you do not give your employee Copy B of the IRS Form W-2, your notice about the EIC can be any of the following:
- A substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy C of the IRS Form W-2,
- Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or
- Your own written statement with the same wording as Notice 797.
If you give your employee a substitute Form W-2 on time which lacks the required EIC information, you must give notice about the 2014 EIC to the employee within one week of the date you gave him or her the substitute Form W-2. If Form W-2 is required, but not given on time, you must give the employee notice about 2014 EIC by January 31, 2015. If Form W-2 is not required, you must give your notice to the employee by February 2, 2015.
When you file your 2014 federal income tax return in 2015, attach Schedule H, Household Employment Taxes. Use this Schedule, discussed further below, to figure your household employment taxes. You will add the federal employment taxes on the wages you pay 