Nanny payroll confusion - File Schedule H, 940/941 forms, or both for household employee?

Thanks for the explanation. I'm facing a similar situation but with a part-time housekeeper. My payroll company insists that filing 940/941 is the "professional way" to handle household employees. Are there any disadvantages to using the business forms instead of Schedule H? Does it impact my personal tax situation either way?

Wait, I thought if you use a payroll service for your nanny, they HAVE to file 940/941 forms? That's what my accountant told me. He said Schedule H is only for people who calculate and pay the taxes themselves without a service. Is that wrong?

There are no real advantages to using business forms (940/941) for household employment - it's actually more paperwork and complexity than needed. The IRS specifically created Schedule H for household employers to simplify the process. Your payroll company is incorrect about the "professional way" - Schedule H is the proper form for household employees regardless of who calculates the taxes. This is a persistent misconception in the industry. Your payroll service can still calculate everything and make payments, but the correct way to report those taxes is via Schedule H. A payroll service doesn't have to file 940/941 forms for household employees - that's simply incorrect information. Schedule H was specifically designed for household employment regardless of whether you calculate taxes yourself or use a service.

Did it actually help resolve the issue with your payroll company though? Mine is pretty stubborn about insisting they're doing it right with the 940/941 forms.

How does this taxr thing work exactly? Do they just tell you what forms to file or do they actually help with any communication with the IRS if there's been incorrect filing in previous years? I'm worried I've been doing this wrong for 3 years now.

Yes, it absolutely helped resolve the issue! I showed my payroll company the detailed analysis which cited the specific IRS publications about household employment. They initially pushed back but couldn't argue with the documentation. We switched to the correct Schedule H reporting and they adjusted their process. The system analyzes your tax documents and payroll records to identify the correct forms and procedures, but they also provide explanation documents you can use when dealing with third parties. They have templates for communicating with both payroll companies and the IRS, including how to correct previous years' filings. In my case, we had to file amended returns for the previous year, and the templates made it much easier to explain the situation.

How does this Claimyr thing actually work? I've been trying to call the IRS for weeks about this exact issue but can never get through.

Sounds too good to be true. The IRS phone system is intentionally designed to keep people from talking to agents. I highly doubt any service can magically get you through when millions of people can't get through each year.

It's pretty straightforward - they use technology that navigates the IRS phone tree and holds your place in line. When an agent is about to answer, they call you and connect you directly to that agent. It basically handles all the waiting and phone tree navigation for you. I was skeptical too, but it actually works. The system gets your information first, then works in the background while you go about your day. The IRS phone system is definitely designed to be difficult, but Claimyr has figured out how to efficiently navigate it. I was also doubtful until I tried it, but speaking directly with an IRS agent solved my nanny tax confusion in minutes instead of weeks of guesswork and potentially expensive mistakes.

Thanks for bringing this up! We do have our own EIN that we got when we first hired our nanny. HP has been using that for all the filings and payments. So if I understand correctly, I should still file Schedule H on our personal return, but make sure to include our EIN on it so the IRS can connect the dots with the payments we've already made?

Yes, exactly! Since you have your own EIN and the payments were made under that number, you should definitely file Schedule H with your personal return and include that same EIN on the form. This will help the IRS match up the payments you've already made through EFTPS with your personal tax return. You should also contact HP and tell them to stop filing 940/941 forms going forward, since Schedule H is the proper way to report household employment taxes. They can still calculate your nanny taxes and make payments through EFTPS using your EIN, but the formal reporting should be done through Schedule H on your personal return.

It won't necessarily trigger an audit, but it could cause confusion at the IRS that might lead to notices being sent to you. The issue is that you'd be reporting the same employment taxes in two different ways. The best approach is to contact your payroll provider immediately and have them stop filing the 940/941 forms if they've been doing so. Then file your personal return with Schedule H. For any quarters where 940/941 forms were already filed for 2024, you should make sure the Schedule H reflects those payments were already made. This is definitely a situation where getting professional tax advice specific to your situation would be worthwhile to avoid future complications.