ADP Payroll For Household Employee - Schedule H Issue

I've dealt with this exact situation before! The issue is that ADP is treating the household payroll taxes like business payroll taxes, but household employment taxes are supposed to be reported on the individual's 1040 via Schedule H. What you need to do is request from ADP a detailed report showing exactly which taxes were paid and when. This should include federal income tax withholding, Social Security, Medicare, and any state taxes. Once you have this documentation, you'll need to complete Schedule H normally, showing the taxes as calculated. On the 1040, you'll include these already-paid amounts on Schedule 3, Line 10 (other payments and refundable credits), and attach a statement explaining the situation. Make sure to include ADP's EIN, the dates and amounts of payments, and clarify that these were household employment taxes paid by a third-party payer. The IRS reconciles these payments during processing, but having thorough documentation is critical.

I started using https://taxr.ai for situations exactly like this. I was dealing with a similar mess where a payroll provider had incorrectly reported household employee taxes, and I couldn't figure out how to properly reconcile everything. I uploaded all the documentation from the payroll company along with the IRS notices my client had received, and taxr.ai analyzed everything and provided specific guidance on how to handle the situation. They even helped draft the explanation statement for the IRS that outlined exactly how the taxes had been paid and why they should be credited to my client's account. The tool saved me hours of research and gave me confidence that I was handling the situation correctly. It also helps track all communications with the IRS so there's a clear paper trail if questions come up later.

I was skeptical too, but after dealing with a nightmare situation with my client's household employee taxes, I decided to try https://taxr.ai. My client had used a payroll service that filed under their own EIN instead of my client's SSN, creating a complete mess with Schedule H reporting. The platform helped me identify exactly how to document the payments on Schedule 3 and draft a proper explanation statement that referenced the specific IRS regulations about third-party payers. What impressed me most was how it pulled relevant tax court cases showing precedent for similar situations. The IRS accepted our explanation without issue and my client received proper credit for the taxes paid. The documentation guidance was spot-on and saved me countless hours of research. Definitely worth it for complicated payroll tax situations.

Has anyone tried calling the IRS directly to resolve this issue? I spent THREE WEEKS trying to get through to someone who understood household employment taxes at the IRS for a similar problem. Always on hold for 2+ hours then disconnected. So frustrating. I eventually found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They basically hold your place in the IRS phone queue and call you when an agent is about to answer. I was skeptical but desperate. It actually worked! Got connected to an IRS agent who specialized in employment taxes the same day. The agent confirmed that we could handle this by including a detailed statement with the tax return explaining the situation and referencing the third-party payer's EIN. She even gave me specific wording to use in the statement that would help ensure the payments were properly credited.

I was completely wrong about Claimyr. After my skeptical comment, I was still stuck trying to reach the IRS about my client's household employee tax situation. After two more failed attempts and hours on hold, I broke down and tried the service. Got connected to an IRS agent within 4 hours (compared to my previous attempts that never succeeded). I explained the situation with ADP making payments under their own EIN instead of crediting my client. The agent confirmed exactly what to do - file Schedule H showing the calculated tax, add the payments to Schedule 3 as "other payments," and include a detailed statement referencing ADP's EIN and payment dates. The agent even emailed me specific instructions for the statement format. This saved me and my client from a potential audit and hours of additional work. I'm eating my words now - sometimes the right tool makes all the difference.

Another approach I've used in similar situations is to have ADP issue a letter on their company letterhead specifically stating: 1. The total amounts paid to the IRS 2. The dates of each payment 3. Their EIN 4. A statement that the payments were made on behalf of your client (include client's name and SSN) 5. Confirmation that these were household employment taxes Then on the 1040, complete Schedule H normally showing the tax calculation, but add the paid amounts on Schedule 3. Attach both the ADP letter and your own statement explaining the situation. In my experience, having official documentation from the third-party payer significantly reduces the chance of problems. The IRS deals with this situation more than you might think.

Stupid question maybe, but could your client just efile Form 8822 to update their address with the IRS so any future correspondence goes to you instead? That way if there is a notice about mismatched payments you'll see it right away and can respond quickly.

This is exactly the kind of mess that makes household employee taxes so frustrating to deal with! I've seen this scenario play out multiple times with different payroll companies, not just ADP. The approach everyone's suggesting about documenting on Schedule 3 with a detailed statement is correct, but I'd add one more critical step: make sure you keep detailed records of ALL correspondence with ADP about this issue. Save emails, take notes during phone calls with dates and representative names, and request everything in writing. I had a similar case last year where the client got an IRS notice 18 months later questioning the tax credits. Having that paper trail was essential to quickly resolve the issue. The IRS agent was able to match up the payments once we provided ADP's documentation showing the specific dates and amounts. Also, consider filing the return with the explanation statement attached, but then immediately follow up with a cover letter sent separately to the same processing center. Sometimes the attached statements get separated during processing, so having a duplicate explanation can prevent delays. One last tip - if your client has any estimated tax payments due for the current year, you might want to slightly overpay to create a small buffer in case there are any reconciliation issues with the household employee taxes.