Reporting for household employers.

Section 2 of the Social Security Domestic Employment Reform Act of 1994 made two major changes in the rules for household employers: (1) for wages paid after December 31, 1994, reporting and payment of FICA (Social Security and Medicare) and FUTA (unemployment) taxes and any withheld income taxes are now required on a calendar-year basis and (2), for wages paid after December 31, 1993, household employers are no longer liable for FICA taxes for household employees to whom the employer pays less than $1,000 during the year.

The Internal Revenue Service issued Notice 95-18 (1995-18 IRB-1), which says if cash remuneration paid to a household employee is $1,000 or more in a calendar year, all of the cash paid (including the first $1,000) to that employee is subject to FICA taxes.

Also, starting in 1995, household employers no longer are required to file forms 942 and 940. Instead, they are now required to report household employees' FICA taxes and withheld income taxes on a new schedule H, a new form that is also to be used to compile FUTA tax information.

According to Notice 95-18, employers who have both household and other employees may either (1) include household employees annually on schedule H and report all other employees on form 941 and on form 940 (or 940-EZ) or (2) include all employees quarterly on form 941 and annually on form 940.

The new law also says, beginning in 1995, cash wages paid to anyone under 18 for domestic services performed in a private home are exempt from FICA taxes, if the services are not the employee's principal occupation.

Observation: Be aware that Notice 95- 18 also applies to executors of estate a d trustees. For example, assume an individual hires a worker to perform domestic services. Shortly thereafter, after paying th worker $400, the household employer dies. The decedent's estate pays the worker another $800 to perform housekeeping chores while the estate is being administered. Since the total paid to the worker by both household employers is $ 1, 000 or more, FICA taxes must be paid on t e entire amount.