TAP 206-031

Household Employees, Clarity of Instructions

Issue Statement:

Existing instructions do not provide clear instructions to taxpayers on when to stop filing employment tax forms for household employees, such as, nannies, cleaning people, gardeners, caretakers, etc.  The instructions also promote taxpayer confusion by using the terms "Household" and "Business" interchangeably.

Goal Statement:

Internal Revenue Service (IRS) instructions should inform taxpayers they need not file employment tax forms if they no longer have household employees and clarify the use of the terms "Household" and "Business" used in the forms, instructions and publications.

Proposal:

TAP recommends the following changes to the Publication 393, 200x Federal Employment Tax Forms, and other employment tax forms, instructions and publications:

• Include on the front of future Publications 393, 200x Federal Employment Tax Forms, a statement such as: "You need NOT file employment tax forms for the tax year in which you did not pay wages above $xxx to any household employees."
• Define and use the term "Household/Business" instead of using the terms "Household" and
  "Business" separately and interchangeably on the Form 941, Employer's Annual Federal Unemployment (FUTA) Tax Return, in the Form 941 Instructions and in the Publication 393.  Alternatively, use only the term "Business" and define it as referring to both business entities and household employers for purposes of employment taxes.
• Move Item #16 on Page 2 of Form 941 (check box for "Final" filing of Form 941) to the top of the front page of the form, similar to its placement on the Form 1065 Schedule K-1 Partner's Shares of Income, Credits, Deductions, etc.
• Change text to make it clear that taxpayers should label their last Form 941, Employer's Quarterly Federal Tax Return, as "FINAL."   A section in the instructions appropriately labeled: "If this is the last year you employ household help" would highlight this information for the taxpayer.