A household that pays cash wages to home help totaling more than $1,000 in any calendar quarter generally owes federal unemployment tax on the first $7,000 paid to each household employee, according to IRS Tax Topic 756, updated Sept. 24. The rule reaches families who employ a nanny, a housekeeper or an in-home aide, and it runs on a different test from the Social Security and Medicare threshold that draws more attention.
Two thresholds, two different taxes
The IRS keeps the two tests apart. In Topic 756, the Social Security and Medicare test applies when a household pays cash wages of $3,000 or more for 2026 to a household employee, and the household then generally withholds 6.2 percent for Social Security and 1.45 percent for Medicare, a total of 7.65 percent. The $3,000 figure is measured per employee across the year.
The unemployment test is measured per quarter and across employees. Topic 756 says a household that paid cash wages to household employees totaling more than $1,000 in any calendar quarter of the current or the prior year generally must pay federal unemployment tax, known as FUTA. A household can owe FUTA without ever reaching $3,000 for a single worker, and the reverse is also possible.
The IRS wording is not uniform. Topic 756 states the quarterly test as more than $1,000, while Publication 926, the Household Employer’s Tax Guide for 2026, words it as $1,000 or more in any quarter of 2025 or 2026. The difference matters only for a quarter in which wages land on exactly $1,000.
The $7,000 base and the arithmetic of a 0.6 percent rate
FUTA applies to the first $7,000 of cash wages paid to each household employee, at 6 percent. Topic 756 adds that a household may take a credit of up to 5.4 percent for amounts paid into state unemployment funds, leaving a net rate of 0.6 percent. Publication 926 confirms that the first $7,000 paid to each household employee in 2026 counts as FUTA wages.
On those IRS figures, the arithmetic is simple. A worker paid $7,000 or more in a year produces $420 of tax at the full 6 percent, or $42 at the net 0.6 percent when the full credit applies. The credit depends on the state contributions being made, and the Schedule H instructions for 2025 say those contributions must be paid by April 15 of the following year for the full 5.4 percent credit. The credit for contributions paid after that date is limited to 90 percent of the credit, the same instructions state.
The instructions also flag credit reduction states, jurisdictions that have not repaid money borrowed from the federal government for unemployment benefits. For 2025, California and the U.S. Virgin Islands were on that list, at reduction rates of 0.012 and 0.045.
When a caregiver’s employer is the person being cared for
Older adults who hire help at home can be the employer without having chosen the label. In Tax Tip 2026-70, issued Sept. 22, the IRS says in-home caregivers are generally employees, which makes the care recipient the employer. Employer status brings the employer’s reporting duties, including the Form W-2, according to the tip.
The tip separates that case from caregivers who are not employees. Those workers report the compensation as income on Form 1040 or 1040-SR and may owe self-employment tax, the IRS says, for example when the caregiver is operating a business such as adult day care for several clients.
Schedule H, the W-2 and the 2027 dates
Household employment taxes are reported on Schedule H, which is filed with Form 1040, according to Topic 756 and to the National Association of Tax Professionals, whose December 2025 guidance describes the same filing. Publication 926 gives the 2026 deadlines: Schedule H goes in with the 2026 return by April 15, 2027, and a household employer must give the employee Copies B, C and 2 of Form W-2 by Feb. 1, 2027. The publication also says the employer identification number (EIN) must appear on the forms filed for the worker.
Income tax withholding is a separate matter. NATP states that household employers are not required to withhold federal income tax unless the employee asks for it and provides a completed Form W-4. Publication 926 also lists two ways a household employer can cover the income tax on their own return: ask their own employer to withhold more federal income tax, or make estimated tax payments for 2026.
Relatives the FICA rules leave out
The exemptions are narrow. Topic 756 lists them under Social Security and Medicare withholding: a household does not withhold those taxes from wages paid to a spouse, to a child under 21, to a parent unless an exception is met, or to an employee under 18. Tax Tip 2026-70 lists the same four groups.
The controlling record for both thresholds is Topic 756, which the IRS updated on Sept. 24, and Publication 926 carries the same 2026 figures for a household setting up payroll for the first time.
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This article was produced with AI assistance and checked against the primary sources linked above.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
