IRS Instruction 1040 (Schedule H) – If you’re a household employer in the United States, navigating taxes for domestic workers like nannies, housekeepers, or caregivers can feel overwhelming. That’s where IRS Schedule H (Form 1040) comes in. This essential form helps you report and pay household employment taxes, often referred to as the “nanny tax.” In this comprehensive guide, we’ll break down the latest instructions for Schedule H, updated for the 2025 tax year, including who must file, how to calculate taxes, filing deadlines, and key changes. Whether you’re a first-time employer or need a refresher, understanding these rules ensures compliance and avoids penalties.
Based on the official IRS instructions revised December 1, 2025, this article provides step-by-step insights to simplify the process.
What Is Schedule H and Why Do You Need It?
Schedule H, officially titled “Household Employment Taxes,” is an attachment to Form 1040 (or related forms like 1040-SR, 1040-NR, or 1041) used to calculate and report taxes on wages paid to household employees. These taxes include Social Security, Medicare, Additional Medicare Tax, and Federal Unemployment Tax Act (FUTA) taxes. If you hire someone to work in or around your home—such as a babysitter, maid, driver, or yard worker—and you control their work, they may qualify as a household employee.
Failing to file Schedule H when required can lead to penalties, interest, and even audits. On the flip side, proper filing helps fund important benefits like retirement and unemployment for your employees. For the 2025 tax year, key thresholds and rates have been updated to reflect inflation and legislative changes.
What’s New for 2025 Household Employment Taxes?
The IRS regularly updates Schedule H instructions to incorporate new laws and economic adjustments. Here are the highlights for 2025:
- Social Security and Medicare Tax Rates: The Social Security tax rate remains 6.2% for both employer and employee, with a wage base limit of $176,100. Medicare is 1.45% each, with no wage limit. These taxes apply if you pay $2,800 or more in cash wages to a household employee.
- Qualified Parking and Commuter Benefits: The monthly exclusion for qualified parking and commuter transportation (highway vehicles or transit passes) is now $325.
- Withholding on Qualified Overtime Compensation: Under the One Big Beautiful Bill Act (P.L. 119-21), you can deduct up to $12,500 ($25,000 for married filing jointly) of qualified overtime pay from income taxes for years 2025–2028. However, this pay is still subject to Social Security and Medicare taxes. Use updated Form W-4 and Publication 15-T for withholding.
- Bicycle Commuting Reimbursements: This exclusion is permanently eliminated starting in 2025.
- Credit Reduction States: If your employees work in states with unpaid federal unemployment loans, your FUTA credit may be reduced. Check Worksheet 2 in the instructions for calculations.
For any post-publication updates, visit the IRS website at IRS.gov/ScheduleH.
Who Must File Schedule H?
You must file Schedule H if you answer “yes” to any of these questions on lines A, B, or C of the form:
- Line A: Did you pay any household employee cash wages of $2,800 or more in 2025? (Excludes wages to your spouse, child under 21, parent, or anyone under 18 unless it’s their principal occupation.)
- Line B: Did you withhold federal income tax from wages paid to household employees?
- Line C: Did you pay total cash wages of $1,000 or more in any calendar quarter of 2024 or 2025 to household employees?
Household employees are workers you control in terms of what and how work is done, even if they have some flexibility. Examples include nannies, cooks, cleaners, and private nurses. If the worker is from an agency that controls their work or is self-employed (providing their own tools and advertising services), they may not count as your employee.
Special note: If you’re hiring through a government home-care program, you might appoint a fiscal agent using Form 2678. Always verify employment eligibility with USCIS Form I-9 and E-Verify.
How to Calculate Household Employment Taxes?
Calculating taxes involves several components. Here’s a breakdown:
Social Security and Medicare Taxes
- Threshold: Applies to cash wages of $2,800 or more per employee in 2025.
- Rates: 12.4% total for Social Security (6.2% each) on wages up to $176,100; 2.9% total for Medicare (1.45% each) on all wages.
- Additional Medicare Tax: 0.9% on wages over $200,000 (employee portion only; you withhold if applicable).
- Non-Cash Wages: Items like meals or lodging aren’t subject to these taxes but may be reportable on Form W-2.
- Excludable Benefits: Up to $325/month for qualified parking or commuter benefits.
If you don’t withhold the employee’s share, you must pay both portions.
Federal Unemployment (FUTA) Tax
- Threshold: $1,000 or more in cash wages in any quarter of 2024 or 2025.
- Rate: 6.0% on the first $7,000 of wages per employee, reduced by up to 5.4% credit for timely state unemployment payments (net 0.6%).
- Adjustments: Use worksheets for late payments or credit reduction states.
Federal Income Tax Withholding
This is optional but required if your employee requests it via Form W-4. Refer to Publication 15-T for tables.
Use the line-by-line instructions on Schedule H to input these figures. For example:
- Line 1: Total cash wages subject to Social Security.
- Line 2: Multiply by 12.4%.
- And so on, up to total taxes on Line 26.
| Tax Type | Employer Rate | Employee Rate | Wage Base |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | $176,100 |
| Medicare | 1.45% | 1.45% | Unlimited |
| Additional Medicare | N/A | 0.9% | Over $200,000 |
| FUTA | 6.0% (net 0.6% with credit) | N/A | First $7,000 |
Filing Requirements and Deadlines
- Attach to Your Return: File Schedule H with Form 1040, 1040-SR, 1040-NR, 1040-SS, or 1041 by April 15, 2026. Extensions apply to the form but not payments.
- Standalone Filing: If you don’t file a return, send Schedule H to the IRS by April 15, 2026.
- Forms for Employees: Issue Form W-2 by February 2, 2026, and file with Form W-3. Electronic filing is encouraged.
- EIN Requirement: Get an Employer Identification Number (EIN) via IRS.gov/EIN if needed.
- Payments: Pay taxes electronically or by mail; use Form 1040-ES for estimates to avoid underpayment penalties.
Keep records like wage details, Forms W-4, and payment proofs for at least 4 years.
Common Mistakes and Penalties to Avoid
- Penalties: Late filing of W-2/W-3 can cost $50–$630 per form. Underpayment of taxes incurs interest and penalties. False information may lead to fines.
- Amending Errors: Use Form 1040-X with a corrected Schedule H if needed.
- Outsourcing Payroll: You’re still responsible if using a third party.
Pro tip: COVID-19 sick and family leave credits expired after 2021, so they’re no longer on Schedule H.
Additional Resources and Tips
For state-specific unemployment taxes, contact your state agency. If you’re in Puerto Rico, adjustments apply for local forms.
This guide is for informational purposes only—consult a tax professional or the IRS for personalized advice. Download the full instructions from IRS.gov to stay compliant.
By following these IRS Schedule H instructions, you’ll handle household employment taxes efficiently and avoid costly surprises. If you have questions, visit IRS.gov or speak with a certified accountant.