Household Employment - Nanny Tax - 1040 Schedule H

dadoesMarch 23, 2009

My grandmother, now 89 years old, has not filed a 1040 for a number of years, doesn't have enough income to be taxable. Toward the end of 2007 (sometime in the 3rd quarter) she began employing/paying a part-time caregiver, so household employment tax comes into play (whoooeeee, her savings is getting chewed up). Schedule H can be filed without a 1040, and the rules say that there is NO PENALTY for NOT MAKING estimated payments (1040ES) if the only tax liability for the year is Schedule H.

I don't trust the IRS to follow its own rules, being that I ran into an issue at the business where I do bookkeeping, on point of a balance due that I paid with Form 940 (Federal Unemployment Tax). The rules say that a balance due of $500 or less for the year can be paid with Form 940, so I remitted a payment of $90.52. I received notice of a penalty (graciously not charged) for underpayment of taxes ... that is, for paying the balance with the Form 940 (as the rules say is allowed) instead of by payroll tax deposit coupon. I called the IRS to argue the point, and the representative kept reading their own instructions WRONG, referencing the wrong balance line on the form, until finally she got it right after I repeatedly went over the instructions and line with her. Then she agreed that I was right, the penalty notice should NOT have been assessed, could not explain why it was assessed, and advised that in the future I should pay the balance by deposit coupon to avoid risking further incidents.

So ... back to my grandmother. I called the IRS early in 2008 to check on the Schedule H question. Upon being passed back and forth between different departments and phone reps, NO ONE could definitively answer my question on whether there's a limit on how much can be the balance due of Schedule H without penalty. So, I went ahead and made estimated payments during 2008, for fear that the balance due ($3700) would be too large and trigger a penalty (see story on Form 940 above). So now I do have to file her a 1040 for 2008 since Schedule H by itself doesn't make a provision for estimated payments.

Are there any tax experts reading this who can tell me whether or not a penalty would be assessed for a balance due in excess of $3500 on Schedule H, with no other tax liability involved? I'd like to simplify the paperwork and file only Schedule H for 2009.

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You need to talk to a CPA/lawyer specializing in this type of situation.

    Bookmark   March 23, 2009 at 10:18PM
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