Question 1

What triggers an IRS audit for a household employer?

Accepted Answer

The most common triggers are (1) paying a household employee $3,000+ in a year 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 the everyday compliance gaps the IRS catches.

Question 2

What's the penalty for not filing Schedule H?

Accepted Answer

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.

Question 3

What is Schedule H and who has to file it?

Accepted Answer

Schedule H is the IRS form household employers use to report Social Security, Medicare, federal unemployment (FUTA), and any federal income tax withheld for household employees. You must file it with your Form 1040 if you paid any single household employee $3,000 or more in cash wages during the year (2026 threshold), or if you paid $1,000+ in any calendar quarter across all household employees.

Question 4

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

Accepted Answer

No. Under IRS Publication 926, household workers are classified as W-2 employees if you control when, where, and how they do their work — which applies to essentially all nannies, housekeepers, and caregivers. Issuing a 1099 to avoid employer taxes is misclassification, and if caught it exposes you to back payroll taxes (both halves of FICA), failure-to-deposit penalties, and state-level penalties.

Question 5

What's the cash wage threshold for 2026?

Accepted Answer

For 2026, the FICA (Social Security + Medicare) cash wage threshold is $3,000 per household employee per year. Once you cross that for any single employee, both employer and employee owe 6.2% Social Security and 1.45% Medicare on every dollar of wages. Some states have lower thresholds for state unemployment insurance — California triggers at $750/quarter, New York and DC at $500/quarter, and Maine at $1,000/year.

Question 6

What are FICA taxes and who pays them?

Accepted Answer

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.

Question 7

Does this audit simulator submit anything to the IRS?

Accepted Answer

No. This is a self-assessment tool. Your inputs stay in your browser and on our servers long enough to generate findings, and nothing is transmitted to the IRS, your state, or any third party. It's educational — the output shows you what a real tax professional would flag if they reviewed your situation.

Question 8

How accurate is the dollar exposure number?

Accepted Answer

The exposure number is a close approximation based on the FICA rate (15.3% combined) applied to your wages and the FUTA rate (0.6% on the first $7,000). It doesn't include penalties, interest, or state-specific taxes — actual IRS assessments in an audit scenario can be higher once those are added. Use it as a rough order of magnitude, not an exact bill.

Question 9

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

Accepted Answer

You're not alone — the household employer space has historically high non-compliance. The typical path to regularization is (1) start doing it right going forward immediately, (2) work with a tax professional to file amended returns (Form 1040-X plus Schedule H) for prior years, (3) issue W-2c corrections if you had previously filed 1099s. The sooner you start, the smaller the exposure typically grows.

Question 10

Which states have extra rules beyond the federal baseline?

Accepted Answer

California (SDI, PFL, ETT, and a $750/quarter SUTA threshold), New York (SDI, PFL, $500/quarter threshold), DC ($500/quarter threshold), New Jersey (TDI, FLI), Rhode Island (TDI), and Washington (PFML, WA Cares Fund) all have state-specific payroll taxes beyond the federal baseline. Indiana, Kentucky, Ohio, Pennsylvania, and Michigan have significant local income taxes at the county or city level. Maine uses a $1,000/year SUTA threshold. The simulator surfaces state-specific rules when your state has them.

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