Parent as a household employee

[OxanaD]

Hello!My mother is a household employee for me and my husband. She watches our kids. Our CPA created an EIN number under my husbands name. Even though technically she is not his mom, but mine, will we be exempt from SS, medicare and unemployment taxes? Or does EIN need to be changed to

my name. CPA is saying that it doesn’t matter since it’s the same household. How and when will the relationship between us and mom need to be proven? Thank you 

[Opus 17]

You don't need an EIN at all.  For a joint return, you are "one taxpayer" (more or less) so it doesn't matter which spouse the employee is the parent of.

Because the household employee is your (one of your) mother's, you are not required to withhold or pay household employee tax (social security and medicare tax).  Because you do not withhold social security and medicare tax, you are also not required to issue a W-2 for her household employee wages.  And that means you don't need the EIN.  

(If you withheld federal or state income tax, then you would issue a W-2, even though boxes 3-6 would be blank, and then you would need the EIN.  You would also need to file form 941 or 944 to report and pay the quarterly federal income tax withholding to the IRS.  But this is a lot of work you don't need to do.  It would be far easier to just pay your mother and let her make estimated tax payments, if required.)

As a household employee without a W-2, your mother would report the wages on line 1b of form 1040, "household employee wages not on a W-2."  Turbotax includes this in the standard interview.  

[OxanaD]

Thank you soooo much!Since we didn’t know this we already have an EIN under my husband’s name and issued her W2 for last year’s taxes. We didn’t know that it had to be filed quarterly for last year. We were about  to file 941 for this year’s first quarter. Should we not do that and just file 1040 at the end of the year and that’s it?Or should we continue to file quarterly with basically just income tax?And EIN under my husbands name is ok in this case too?Thank you again!

[DMarkM1]

No don't file the 941.  Instead of withholding taxes (federal and/or state) and having to file W2s annually, 941s quarterly and state quarterly reports, don't withhold and just have your mother pay her quarterly taxes.  Then when she does her tax return she'll report the income (you paid her) as wages not reported on a W2.  She would also report the quarterly taxes she pays to get those payments credited on her return.  

You can use the payments you are making to her a expenses for the childcare credit on your return.     

[OxanaD]

We included unemployment taxes, Ss and medicare tax for last years return since we didn’t know we were exempt. So we owed money and now have to file quarterly. Also owed penalties for not filing quarterly. So even though we owed money last year it’s still ok not to file quarter 941 this year?And can we get a refund for last year’s money paid due to

us not knowing that we didn’t have to pay Ss, medicare and unemployment. Thank you so much for

these answers. 

[Opus 17]

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@OxanaD wrote:

We included unemployment taxes, Ss and medicare tax for last years return since we didn’t know we were exempt. So we owed money and now have to file quarterly. Also owed penalties for not filing quarterly. So even though we owed money last year it’s still ok not to file quarter 941 this year?And can we get a refund for last year’s money paid due to

us not knowing that we didn’t have to pay Ss, medicare and unemployment. Thank you so much for

these answers. 

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If you filed form 941 in 2023, you should still also have filed a schedule H with your tax return.  Because you withheld tax on form 941 (even by mistake), you were required to file schedule H even though you would normally be required to include it.

I believe you need to file amended form 941s, a corrected W-2, and an amended tax return to remove schedule H.  If you can't do this yourself, you might find that the cost to have a tax professional help you might be more than the taxes you paid.  You would have to think about this carefully. 

Going forward, it's fine if you stop filing form 941, the form is only required when you withhold taxes from qualifying employees or you have employees who will receive a W-2, and if you don't have any employees who will receive a W-2, you don't need to file the form. 

[OxanaD]

Thank you so much!!!And how would mom pay her quarterly taxes?What form is that?

[Opus 17]

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@OxanaD wrote:

Thank you so much!!!And how would mom pay her quarterly taxes?What form is that?

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If she is required to pay taxes at all (depends on her other income and filing status) she can make quarterly estimated payments at www.irs.gov/payments.  She can do a credit card payment or checking account debit, she can even schedule payments in advance.  Be sure to use "2024 estimated tax payment" as the reason from the pull-down menu.  

If she needs help figuring what her tax payment should be, she can use form 1040-ES

https://www.irs.gov/forms-pubs/about-form-1040-es

or she can use the tax estimator here.

TaxCaster tax calculator

Either way, she does not need to send any forms to the IRS for the estimated payments if she pays online, it will automatically be credited to her account via her SSN. 

[OxanaD]

Understood, thank you very much. So to sum up my understanding is this:I as an employer do not need to do anything quarterly until I fill out my 1040 form for year 2024 in the beginning of 2025. I do not issue her W2 for year 2024. Mom will estimate if she needs to pay her taxes in advance. If payments are needed she pays online. If no payments are needed she doesn’t file any forms quarterly and only files 1040 for year 2024 in 2025. Is this correct?

[OxanaD]

Also, mom’s income is staying the same this year. And last year she received a refund. So it’s likely, she doesn’t need to pay taxes in advance quarterly?

[Opus 17]

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@OxanaD wrote:

Also, mom’s income is staying the same this year. And last year she received a refund. So it’s likely, she doesn’t need to pay taxes in advance quarterly?

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It would be best to pay something.  If her total tax was (for example) $2000, it would be best to pay $500 per quarter. This could be through withholding from a job or social security, or estimated payments, or a combination.  I don't know what kind of income and deductions she has so I can't be specific.  (Often, a retired person will pay little or no tax, even with a small side job.)

There is a rule that penalties for non-payment or underpayment will not be enforced if the person owes less than $1000 at tax time, or they paid into the IRS (via combination of withholding and payments) at least 90% of their tax.  This is not the same as getting a refund.  For example, if her withholding and payments were $5000 and she got a $1000 refund, then her tax was $4000.  If her tax is expected to be the same this year, she needs to pay at least $3000 into the system by combination of withholding and payments.   On the other hand, if her only income is this job plus social security, and she had $1000 of withholding and got a $1000 refund, then she owed no tax, and if she is expected to owe no tax this year, she does not need to make a payment. 

[OxanaD]

Thank you so much for this. Also please advise. My mom needs prove of income for marketplace insurance eligibility, that she is currently enrolled in. Can I continue to provide her with a W2 and file quarterly 941 with 0$ ss, medicare,  income and unemployment tax if I wanted to?Pr may be you are familiar and to qualify for Marketplace insurance income prove document doesn’t have to be a W2 form?Thank you again very much 

[Opus 17]

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@OxanaD wrote:

Thank you so much for this. Also please advise. My mom needs prove of income for marketplace insurance eligibility, that she is currently enrolled in. Can I continue to provide her with a W2 and file quarterly 941 with 0$ ss, medicare,  income and unemployment tax if I wanted to?Pr may be you are familiar and to qualify for Marketplace insurance income prove document doesn’t have to be a W2 form?Thank you again very much 

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I believe that you can issue a W-2 if you want to.  You would also be required to file form 941 (however, check your EIN documents. Some small employers are allowed to file a form 944 annually for all wages rather than a quarterly form 941, which form you need will be indicated with the document that issued the EIN).  The wages are still not subject to any tax withholding, unless you and she wish to participate in voluntary withholding of state and federal income tax.  You would check the box on line 4 to indicate that none of the wages are subject to social security or medicare tax.  Form 941 can also be e-filed.

https://www.irs.gov/businesses/e-file-employment-tax-forms

Note that if you withhold state income tax, there will be a similar quarterly form for your state.

And of course, you need to file form W-2 and W-3 at the end of the year.  There are online providers that will e-file this form for you for under $10.

Even if you file form 941 (with or without withholding federal income tax), you are not liable for household employee tax and should not include schedule H on your tax return next year.

I don't know enough about marketplace insurance, but it is possible that her tax return showing household employee wages on line 1b might be sufficient to show she is working, without a W-2.