If you paid a nanny, housekeeper, caregiver, or other domestic worker and the household employee wages were never reported on a W-2, the fix is to file an amended federal return with Schedule H for every year you missed, issue late W-2s to the employee, and pay the back taxes with penalties and interest. Voluntary corrections generally go better than waiting for the IRS to find the problem, and there is no statute of limitations on a return that was never filed, so your exposure keeps growing until you act.
Whether You Actually Owe Anything
Two separate thresholds decide this. For Social Security and Medicare tax (FICA), the trigger for 2026 is paying any single household employee $3,000 or more in cash wages during the year; once you cross it, FICA applies to all of that employee’s wages for the year. For federal unemployment tax (FUTA), the trigger is $1,000 or more in total cash wages to all household employees in any calendar quarter of the current or prior year.1Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide Cash wages include check and direct deposit but not food or lodging you provide.
Some workers don’t count. Wages paid to your spouse, your child under 21, or your parent are exempt from FICA and FUTA, though the parent exemption has conditions tied to whether there’s a young child in the home.2Internal Revenue Service. Family Employees So is a worker under 18 whose main occupation isn’t household work, like a teenager who babysits on weekends. If everyone you paid falls into one of these categories, you probably don’t have a filing problem.
What You Should Have Paid
Social Security and Medicare
FICA is split between employer and employee: 6.2% each for Social Security and 1.45% each for Medicare, so 7.65% per side and 15.3% in total.3Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates You were supposed to withhold the employee’s half. Since you didn’t, you owe the full 15.3% to the IRS. You can try to recover the employee’s share from future paychecks, but employers correcting past years often just absorb it.
Social Security tax applies only to the first $184,500 of wages for 2026, a ceiling that rarely matters for household workers.3Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Medicare has no cap, and an additional 0.9% Medicare tax kicks in on wages above $200,000.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax
Federal Unemployment
FUTA is entirely the employer’s cost. The statutory rate is 6% on the first $7,000 of cash wages per employee.5Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax If you paid into your state’s unemployment fund, you get a credit of up to 5.4%, dropping the effective federal rate to 0.6%, or about $42 per employee on the full wage base.6Internal Revenue Service. Topic No. 759, Form 940, Employers Annual Federal Unemployment Tax Act (FUTA) Tax Return If you never registered with your state system, you may not qualify for the credit, and you owe the full $420 per employee.
Federal Income Tax Withholding
You are not required to withhold federal income tax from a household employee unless the employee asked you to and you agreed by having them fill out a W-4.7Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees If income tax withholding never came up, you don’t owe anything on that line. The employee remains responsible for reporting the wages and paying income tax on their own return.
The Correction Sequence
Work through these steps for each year you missed.
Get an Employer Identification Number
If you never had one, apply online through the IRS and receive the number immediately.8Internal Revenue Service. Get an Employer Identification Number That EIN goes on every form.
Calculate Each Year Separately
Total the cash wages you paid for each calendar year, then apply the FICA and FUTA rates using the threshold that was in effect for that year, not the 2026 threshold. The FICA threshold was $2,700 for 2024 and $2,800 for 2025, for example.9Internal Revenue Service. Schedule H (Form 1040) 2024 – Household Employment Taxes
File Form 1040-X With Schedule H
For each missed year, submit Form 1040-X and attach a Schedule H completed with that year’s version of the form.10Internal Revenue Service. Instructions for Schedule H (2025) Schedule H is where the wages get reported and the FICA and FUTA numbers get calculated; the total flows onto the amended return as additional tax due.11Internal Revenue Service. About Schedule H (Form 1040), Household Employment Taxes Prior-year forms are on the IRS website. Pay the tax, penalties, and interest when you submit.
Prepare Late W-2s
Prepare a W-2 for every employee you paid at or above the FICA threshold in a given year, or for whom you withheld income tax.1Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide The W-2 shows total wages and the Social Security and Medicare taxes that should have been withheld. Give Copies B and C to the employee.
File the W-2s and W-3 With Social Security
Send Copy A of each W-2 along with Form W-3 to the Social Security Administration, which can be done electronically through Business Services Online. This posts the wages to the employee’s SSA earnings record.
Penalties and Interest
Failure to File
Because Schedule H should have been filed with the original return, the IRS treats a missing schedule as a late return. The penalty is 5% of the unpaid tax per month or partial month, capped at 25%. If you are more than 60 days late, a minimum penalty applies: the lesser of $525 (for returns required in 2026) or 100% of the tax.12Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges For anyone years behind, expect to hit the 25% cap.
Failure to Pay
A separate 0.5%-per-month penalty applies to unpaid tax, also capped at 25%. In months where both penalties run, the filing penalty is reduced by 0.5% so the combined rate stays at 5%. Under an approved payment plan, the failure-to-pay rate drops to 0.25% per month.13Internal Revenue Service. Failure to Pay Penalty
Late W-2 Penalties
The IRS charges per form, per year, for W-2s filed late with the SSA. For returns due in 2026:
- Up to 30 days late: $60 per W-2
- 31 days late through August 1: $130 per W-2
- After August 1 or never filed: $340 per W-2
- Intentional disregard: $680 per W-2, no maximum
Three missed years for one employee means three separate penalty assessments.14Internal Revenue Service. Information Return Penalties
Interest
Interest runs on unpaid tax from the original due date and compounds daily. The rate for individual underpayments in the first quarter of 2026 is 7% per year, and it adjusts quarterly.15Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026 Interest also accrues on the penalties.
Asking the IRS to Reduce the Penalties
Two options can knock down the penalty piece, though neither touches the underlying tax or interest.
First-time penalty abatement is available if you filed and paid on time for the three years before the year you’re correcting. The IRS will waive the failure-to-file and failure-to-pay penalties as a one-time courtesy; you can request it by phone or in writing after a penalty notice.16Internal Revenue Service. Administrative Penalty Relief
Reasonable cause relief is available if you can show you exercised ordinary care and the failure wasn’t willful. Illness, disaster, bad advice from a tax professional, and inability to obtain records are common grounds. Attach a written explanation and documentation.17Internal Revenue Service. Penalty Relief for Reasonable Cause
One boundary to be aware of: employers cannot use Form 843 to request abatement of FICA taxes or income tax withholding. The Form 843 instructions specifically bar that use.18Internal Revenue Service. Instructions for Form 843 – Claim for Refund and Request for Abatement Corrections run through Form 1040-X with Schedule H.
Why Waiting Makes It Worse
Normally the IRS has three years from the date you filed a return to assess additional tax. That clock never starts on a return that was never filed. If you never filed Schedule H, there is no statute of limitations, and the IRS can assess the household employment taxes at any point in the future.19Internal Revenue Service. Help Yourself by Filing Past-Due Tax Returns Every additional year adds more penalties and more compounded interest. Filing starts the clock and caps the exposure.
What Your Employee Loses in the Meantime
Unreported wages don’t just create your problem. The Social Security Administration has no record of the earnings, so the employee loses credits toward retirement, disability, and survivor benefits. Filing the late W-2s and paying the back FICA corrects the earnings record. For a long-term caregiver approaching retirement, that record can matter as much as the tax bill.
Staying Compliant Going Forward
Ongoing compliance is manageable: Schedule H once a year with your regular return. Plan for the tax during the year, though, or you can trigger an underpayment penalty on your personal return. If you have a regular job, increase your federal income tax withholding by filing a new W-4 with your employer to cover the expected household taxes. Otherwise, make quarterly estimated payments with Form 1040-ES.7Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees
Keep wage records, tax calculations, and copies of every form for at least four years after filing.20Internal Revenue Service. Employment Tax Recordkeeping States generally have their own registration, unemployment insurance, workers’ compensation, and sometimes income tax withholding rules, so check with your state labor or revenue department once the federal side is settled.