The Household Employee Tax Exemption for employees is based on family relationship to the employer.
This exemption applies to parents working for their children, and exempts them from paying federal unemployment taxes (FUTA), and Social Security and Medicare taxes (FICA).
Highlights:
- Parents employed by their child are exempt from FUTA taxes, SUTA taxes, and FICA (Social Security and Medicare tax).
- This only applies to parents working for their child as part of Consumer-Directed Services.
- This does NOT apply if the parents work for their child through the Direct Service Agency, since the agency, not the child, is then the employer.
- This is not OPTIONAL – if this applies to you, you are legally required to exempt from paying the applicable taxes.
Action Steps:
- If you are a parent working for your child under the CDS option, fill out the Fiscal Employer Agent Household Employee Tax Exemption Information form
- Turn in the signed form to the Financial Management Service agency completing payroll for the recipient.
- Request the FMSA (payroll agency for recipient) refund taxes for 2014, 2015, and 2016, and refer them to instructions for “Form 941-X, ” to receive a refund of overpayment. (see Q19 & A19).
Links to pertinent documents, and relevant excerpts
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- IRS Instructions on Correcting Employment Taxes
- Topic Number 756 – Employment Taxes for Household Employees
- Publication 15 (2017), (Circular E), Employer’s Tax Guide – IRS.gov
- Publication 926 (2017), Household Employer’s Tax Guide – IRS.gov
- Powerpoint by Mollie Murphy, Financial Management Services Director at the National Resource Center for Participant-Directed Services: Fiscal/Employer Agents: Challenges in Operations and Compliance
- CDS Handbook, Appendix VI, Excluded Employee Status for State of Texas Unemployment Tax (SUTA) Payments
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