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Set up employees and payroll items

Set up household employees

For payroll compliance (annually licensed)
Federal tax withholding and payment requirements for clients who are household employers vary based on a number of factors, including how much the household employees are paid, the type of employer, and whether or not employer and employee have an agreement for withholding federal income taxes (FIT). This topic is intended to define the terms household employees and household employers and to guide you through some potential client and employee setup scenarios.

Setup options and scenarios

The setup needed for your household employers and employees depends on the specific circumstances for each client and employee. Use the following decision tree to determine which setup scenarios are for your clients.
Does the employer pay the employee cash wages that are more or less than the amounts specified in Table 1 of IRS Publication 926?
(Those amounts will differ from year to year.)
Setup 1 scenario
The employer is
not
 required to report or pay any tax liability for the employee and does
not
 need to issue a Form W-2.
  1. In general, set up the employee as usual (see the Employee setup, overview).
  2. In the
    Main
     tab of the Employees screen, select
    Household
     as the Employee type.
  3. In the
    Payroll Taxes
     tab of the Employee screen, select the
    Wage Exempt
     checkbox for the following federal taxes:
    • FICA-SS (EE)
    • FICA-SS (ER)
    • FICA-MED (EE)
    • FICA-MED (ER)
    • FUTA
    • FIT
Setup 2 scenario
The employer does not calculate any taxes, but just in case the employees cross the FICA and FUTA thresholds, this setup option enables you to stop tax calculation on the payroll checks themselves, but continues to track taxable wages for all taxes.
  1. In general, set up the employee as usual (see the Employee setup, overview).
  2. In the
    Main
     tab of the Employees screen, be sure to select
    Household
     as the Employee type.
  3. In the
    Payroll Taxes
     tab of the Employee screen, mark the
    Federal tax exempt
     checkbox in the Federal Withholding section.
  4. Mark the
    FICA tax exempt
     and the
    FUTA tax exempt
     checkboxes in the Other Federal Settings section.
At year end, if employees are under the threshold as anticipated, you can make taxable wage adjustments to reduce the taxable wages for the employees.
Setup 3 scenario
The employer does calculate FICA and FUTA taxes, but does not withhold federal withholding for the employee.
  1. In general, set up the employee as usual (see the Employee setup, overview).
  2. In the
    Main
     tab of the Employees screen, be sure to select
    Household
     as the Employee type.
  3. In the
    Payroll Taxes
     tab of the Employee screen, mark the
    Federal tax exempt
     checkbox in the Federal Withholding section.
In this example, only the Federal tax exempt checkbox is marked, because the application you'll need calculate all other taxes for an employee that will meet both the FICA and the FUTA threshold requirements.
Setup 4 scenario
The employer needs to calculate FICA and FUTA taxes and withholds federal withholding for the employee.
  1. In general, set up the employee as usual (see the Employee setup, overview).
  2. In the
    Main
     tab of the Employees screen, be sure to select
    Household
     as the Employee type.
No additional changes need to be made to the
Payroll Taxes
 tab, because the application will automatically calculate and withhold FICA, FUTA, and federal withholding as required.
Setup 5 scenario
The employer does calculate FICA and FUTA taxes, but doesn’t withhold federal withholding. In addition, the employer pays the employee portion of FICA.
  1. Select
    Setup
    , then
    Payroll Items
     and, in the
    Main
     tab, add a pay item
    Employee FICA Reimbursement
     (or whatever description you select).
  2. In the
    Calculation type
     box, select an
    Fixed
     amount.
  3. Select the
    Tax Exemptions
     tab and select the
    All
     checkbox, which will select all federal, state, and local taxes as exempt.
  4. Clear the
    Federal Income Tax
     checkbox in the Federal section, making this pay item taxable for federal income tax only.
  5. Save the new pay item.
  6. In general, set up the new employee as usual (see the Employee setup, overview).
  7. In the
    Main
     tab of the Employees screen, be sure to select
    Household
     as the Employee type.
  8. In the
    Payroll Items
     tab, select the checkboxes for any pay items that you will use to pay this household employee and select the new
    Employee FICA Reimbursement
     pay item that you added.
  9. In the
    Payroll Taxes
     tab, select the
    Federal tax exempt
     checkbox in the Federal Withholding section.
  10. When you enter checks for the household employee, enter the hours or salary amounts using their regular pay items to have the application calculate FICA and other tax amounts.
  11. Manually override the amount of the
    Employee FICA Reimbursement
     pay item with the total amount of the employee FICA-SS and FICA-MED. This will increase the federal income taxable wages by the amount of the reimbursed FICA. The application will display that amount in Box 1 of the Form W-2.
Setup 6 scenario
The employer calculates FICA, FUTA, and federal withholding taxes. In addition, the employer pays the employee portion of FICA, and the employer and employee have reached an agreement for the Employer to withhold FIT.
  1. Select
    Setup
    , then
    Payroll Items
    .
  2. On the Main tab, add a pay item
    Employee FICA Reimbursement
     (or whatever description you select).
  3. In the
    Calculation type
     box, select
    Fixed
     amount.
  4. Select the
    Tax Exemptions
     tab and select the
    All
     checkbox, which will select all federal, state, and local taxes as exempt.
  5. Clear the
    Federal Income Tax
     checkbox in the Federal section, making this pay item taxable for federal income tax only.
  6. Save the new pay item.
  7. In general, set up the new employee as usual (see the Employee setup, overview).
  8. In the
    Main
     tab of the Employees screen, be sure to select
    Household
     as the Employee type.
  9. In the
    Payroll Items
     tab, select the checkboxes for any pay items that you will use to pay this household employee and select the new
    Employee FICA Reimbursement
     pay item that you added.
  10. When you enter checks for the household employee, enter their hours or salary amounts using their regular pay items to have the application calculate FICA and other tax amounts.
  11. Manually override the amount of the
    Employee FICA Reimbursement
     pay item with the total amount of the employee FICA-SS and FICA-MED. This will increase the federal income taxable wages by the amount of the reimbursed FICA. The application will display that amount in Box 1 of the Form W-2 and will display the FIT amount in Box 2.
Setup 7 scenario
The employer
calculates and pays
 FICA, FUTA, and federal withholding taxes for the employee.
The application doesn’t currently support this setup scenario.

Definitions

Household employees
Refer to IRS rules to determine whether or not an employee is a household employee, but
household work
 generally refers to work done by the following types of workers.
  • Babysitters or nannies
  • Caretakers
  • House cleaning workers or housekeepers
  • Domestic workers
  • Drivers
  • Health aides or private nurses
  • Yard workers
Household employers
There are two types of household employers, and they have different options for reporting tax information and making payments.
  • Employers who have no other businesses
    . These employers:
    • You'll need apply for an EIN to use for reporting via Form W-2s.
    • You'll need make tax payments using their Social Security number rather than the EIN and include payments as part of their estimated tax payments.
    • Can pay taxes along with income taxes on Schedule H.
    • Can pay estimated taxes throughout the year and file Schedule H with their income taxes.
  • Sole proprietors, farm owners, and certain non-profits
    . These employers can file and pay using the same options as employers who have no other businesses. But in addition, these employers:
    • Can select to include household employee tax payments on their business 94x forms.
    • Can include household W-2 forms along with their business W-2 forms when reporting tax payments on business 94x forms.

This article applies to:

  • Product: Accounting CS
  • Subject: Payroll checks, Setup
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