Instructions For Schedule H Household Employment Taxes (Form 1040)

What Is the Earned Income Credit

You Should Also Know

(EIC)?

The EIC is a refundable tax credit for certain workers.

What’s New for 2007

You must notify

Which employees must I notify about the EIC?

your household employee about the EIC if you agreed to withhold

The tax rates mentioned in the instructions for Parts I

federal income tax from the employee’s wages but did not do so

and II of Schedule H will not change. However, the cash

TIP

because the income tax withholding tables showed that no tax

wage threshold that you pay to any one household em-

should be withheld.

ployee remains at $1,500 for 2007. The 2007 Employee

Social Security and Medicare Tax Withholding Table is in Pub.

Note.

You are encouraged to notify each employee whose wages

926, Household Employer’s Tax Guide.

for 2006 were less than $36,348 ($38,348 if married filing jointly)

that he or she may be eligible for the EIC.

Limit on wages subject to social security tax.

The $94,200 amount

You must give the

How and when must I notify my employees?

in the instructions for Part I of Schedule H will increase to $97,500.

employee one of the following:

•

The official IRS Form W-2, that has the required information

about the EIC on the back of Copy B.

Estimated Tax Penalty

•

A substitute Form W-2 with the same EIC information on the

You may need to increase the federal income tax withheld from

back of the employee’s copy that is on Copy B of the official IRS

Form W-2.

your pay, pension, annuity, etc. or pay estimated tax payments to

•

avoid an estimated tax penalty based on your household employ-

Notice 797, Possible Federal Tax Refund Due to the Earned

ment taxes shown on line 27 of Schedule H (Form 1040). You may

Income Credit (EIC).

•

increase your federal income tax withheld by filing a new Form

Your written statement with the same wording as Notice 797.

W-4, Employee’s Withholding Allowance Certificate, or Form

If you are not required to give the employee a Form W-2, you

W-4P, Withholding Certificate for Pension or Annuity Payments.

must provide the notification by February 7, 2007.

Make estimated tax payments by filing Form 1040-ES, Estimated

You must hand the notice directly to the employee or send it by

Tax for Individuals. For more information, see Pub. 505, Tax With-

First-Class Mail to the employee’s last known address.

holding and Estimated Tax.

Eligible employees claim

How do my employees claim the EIC?

the EIC on their 2006 tax returns.

Estimated tax payments must be made during the tax

year that the tax liability is incurred.

Eligible em-

How do my employees get advance EIC payments?

CAUTION

ployees who have a qualifying child can get part of the credit with

their pay during the year by giving you a completed Form W-5. You

must include advance EIC payments with wages paid to these

Exception.

You will not be penalized for failure to make estimated

employees. For details, including tables that show you how to

tax payments if both 1 and 2 below apply for the year.

figure the amount to add to the employee’s net pay, see Pub.15

(Circular E), Employer’s Tax Guide.

1. You will not have federal income tax withheld from wages,

pensions, or any other payments you receive.

2. Your income taxes, excluding your household employment

Rules For Business Employers

taxes, would not be enough to require payment of estimated taxes.

Do not use Schedule H if you chose to report employment taxes for

your household employees along with your other employees on

Form 941, Employer’s QUARTERLY Federal Tax Return, Form

What Records To Keep

943, Employer’s Annual Federal Tax Return for Agricultural Em-

ployees, or Form 944, Employer’s ANNUAL Federal Tax Return.

You must keep copies of Schedule H and related Forms W-2, W-3,

If you report this way, be sure to include your household employ-

W-4, and W-5, Earned Income Credit Advance Payment Certifi-

ees’ wages on your Form 940, Employer’s Annual Federal Unem-

cate, for at least 4 years after the due date for filing Schedule H or

ployment (FUTA) Tax Return.

the date the taxes were paid, whichever is later. If you have to file

Form W-2, also keep a record of each employee’s name and social

security number. Each payday, you should record the dates and

State Disability Payments

amounts of:

Certain state disability plan payments to household employees are

•

Cash and noncash wage payments.

treated as wages subject to social security and Medicare taxes. If

•

your employee received payments from a plan that withheld the

Any employee social security tax withheld.

employee’s share of social security and Medicare taxes, include the

•

Any employee Medicare tax withheld.

payments on lines 1 and 3 and complete the rest of Part I through

•

Any federal income tax withheld.

line 5. Add lines 2, 4, and 5. From that total, subtract the amount of

•

Any advance EIC payments you made.

these taxes withheld by the state. Enter the result on line 6. Also,

H-6

Instructions For Schedule H Household Employment Taxes (Form 1040) - 2006 Page 6

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