What triggers an IRS audit for a household employer?

The most common triggers are (1) owing household FICA, FUTA, or withheld federal income tax without filing Schedule H, (2) issuing a 1099 to someone who is legally a W-2 employee, (3) the employee filing for unemployment after the working relationship ends, and (4) the employee later trying to claim Social Security benefits that require documented work history. None of these are exotic — they are everyday compliance gaps.

What's the penalty for not filing Schedule H?

If you owed household employment taxes and didn't file Schedule H, you can face a failure-to-file penalty (typically 5% per month up to 25%), a failure-to-pay penalty, interest on the unpaid tax, and potentially accuracy-related penalties. Actual amounts depend on the balance owed, how late the filing is, and whether the IRS treats the failure as willful.

What is Schedule H and who has to file it?

Schedule H is the IRS form household employers use to report Social Security, Medicare, FUTA, and federal income tax withheld. File it when one nonexempt worker has at least $3,000 of 2026 FICA wages, FUTA-counted household wages reach $1,000 in a quarter, or federal income tax was withheld.

Can I give my nanny a 1099 instead of a W-2?

Generally no. Under IRS Publication 926, a household worker is an employee when you control when, where, and how the work is done. Covered wages can create back FICA and filing exposure, but family and minor-worker exceptions can change the tax and form requirements. If a 1099 was already issued, a tax professional should determine whether to correct it and issue an original W-2; Form W-2c is only for correcting a W-2 that was already filed.

What's the cash wage threshold for 2026?

For 2026, the FICA cash-wage threshold is $3,000 per household employee per year. Once a nonexempt worker reaches it, employer and employee generally owe 6.2% Social Security and 1.45% Medicare on all cash wages. Family-worker exceptions and separate FUTA/state thresholds can change the result.

What are FICA taxes and who pays them?

FICA stands for Federal Insurance Contributions Act and covers Social Security (6.2% up to the annual wage base of $184,500 in 2026) and Medicare (1.45% on all wages, no cap). Both employer and employee owe the same rate, so the combined FICA burden is about 15.3%. If the employer doesn't withhold the employee's share from paychecks, the IRS can legally collect both halves from the employer.

Does this audit simulator submit anything to the IRS?

No. Nothing is filed with the IRS or your state. Your answers are processed on our servers to generate the report. We send only privacy-minimized finding labels—not wages, state, or raw answers—to an AI provider for wording, and our analytics provider receives completion and error events without your tax answers or amounts.

How accurate is the dollar exposure number?

The exposure number is a close approximation of regular FICA based on this employee's wages. It doesn't include penalties, interest, state-specific taxes, or a FUTA estimate because FUTA uses a separate wage base for each employee. Use it as a rough order of magnitude, not an exact bill.

What if I've been paying under the table for years?

You're not alone — household-employer noncompliance is common. Start handling payroll correctly now and work with a tax professional on earlier years. Depending on what was already filed, that may mean an original Form 1040 with Schedule H or an amended Form 1040-X with Schedule H. A prior 1099 may need to be replaced with an original W-2; use Form W-2c only to correct a W-2 that was already filed. The sooner you start, the sooner you can stop the exposure from growing.

Which states have extra rules beyond the federal baseline?

California requires registration and SDI at $750 in a quarter, then adds UI and ETT at $1,000; those obligations can continue through the following year. New York and DC use $500 quarterly unemployment thresholds. New Jersey, Rhode Island, Washington, and other states also have state-specific disability, leave, or payroll rules. The simulator compares your highest household quarter with the applicable thresholds and asks about prior-year state status.

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What would the IRS flag about how you've been paying your nanny?

Answer 12 questions. We'll check common federal and state household-employment issues and show you what needs review.

Educational only. Not tax, legal, or accounting advice. Consult a licensed tax professional for your specific situation.

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