History: Client has for several years filed Sch H for a household employee. Enough income to require Sch H (and W2) with FICA/Medicare issues, but not enough to be involved with FUTA/SUTA thresholds. No problem!
Current: There is a good possibility total wages for 2012 will be less than $1,800 (wages are ~uniform throughout the year). So, goodbye Sch H!! Employer saves paying via Sch H, and employee will just get refund of FICA/Medicare tax that was withheld during the current year.
Now for the questions:
1 - Would there be benefit (mainly to the employee) to break the $1,800 wage level for 2012? Stated differently, does employee get NO Social Security credit for the household wages paid in 2012 unless those wages exceed $1,800 and FICA/Medicare is withheld? (NB: Employee is likely to ask "Does it even matter??")
2 - Does household employer still file a W2 if wages are less than $1,800? Along the same line, perhaps doing so by showing "taxable wages" as earned but FICA/Medicare wages as zero?? (There has never been any federal or state income tax withholding from the wages.)
3 - Per IRS, "we don't care if you report too much income" which in so many words representative said to include the wages on Form 1040, line 7 with or without the presence of any 2012 W2 for those wages. We both agreed line 21 was not a good place for that income!
So.....what suggestions might you have for the employer/employee? The $1,800 can likely be broken due to factors related to employment, including even a Christmas "bonus." But conversely, if it would prudent for all involved, it is just as possible to arrange payments so that the total 2012 wages would be less than $1,800.
Here is a useful excerpt from Pub 926:
"Social security and Medicare wages. You figure social security and Medicare taxes on the social security and Medicare wages you pay your employee.
If you pay your household employee cash wages of $1,800 or more in 2012, all cash wages you pay to that employee in 2012 (regardless of when the wages were earned) up to $110,100 are social security wages and all cash wages are Medicare wages. However, any noncash wages you pay do not count as social security and Medicare wages.
If you pay the employee less than $1,800 in cash wages in 2012, none of the wages you pay the employee are social security and Medicare wages and neither you nor your employee will owe social security or Medicare tax on those wages."
FE
Current: There is a good possibility total wages for 2012 will be less than $1,800 (wages are ~uniform throughout the year). So, goodbye Sch H!! Employer saves paying via Sch H, and employee will just get refund of FICA/Medicare tax that was withheld during the current year.
Now for the questions:
1 - Would there be benefit (mainly to the employee) to break the $1,800 wage level for 2012? Stated differently, does employee get NO Social Security credit for the household wages paid in 2012 unless those wages exceed $1,800 and FICA/Medicare is withheld? (NB: Employee is likely to ask "Does it even matter??")
2 - Does household employer still file a W2 if wages are less than $1,800? Along the same line, perhaps doing so by showing "taxable wages" as earned but FICA/Medicare wages as zero?? (There has never been any federal or state income tax withholding from the wages.)
3 - Per IRS, "we don't care if you report too much income" which in so many words representative said to include the wages on Form 1040, line 7 with or without the presence of any 2012 W2 for those wages. We both agreed line 21 was not a good place for that income!
So.....what suggestions might you have for the employer/employee? The $1,800 can likely be broken due to factors related to employment, including even a Christmas "bonus." But conversely, if it would prudent for all involved, it is just as possible to arrange payments so that the total 2012 wages would be less than $1,800.
Here is a useful excerpt from Pub 926:
"Social security and Medicare wages. You figure social security and Medicare taxes on the social security and Medicare wages you pay your employee.
If you pay your household employee cash wages of $1,800 or more in 2012, all cash wages you pay to that employee in 2012 (regardless of when the wages were earned) up to $110,100 are social security wages and all cash wages are Medicare wages. However, any noncash wages you pay do not count as social security and Medicare wages.
If you pay the employee less than $1,800 in cash wages in 2012, none of the wages you pay the employee are social security and Medicare wages and neither you nor your employee will owe social security or Medicare tax on those wages."
FE
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