Possible Pitfalls Taxes are not due until the return is filed. However, the IRS may penalize taxpayers for underwithholding. Underwithholding applies to not only income tax but also the household workers employment and unemployment taxes. Taxpayers may make estimated quarterly income tax payments, or increase withholding from their wages to forestall penalties. These seven steps pertain only to federal compliance.
Various states have their own schemes for withholding taxes and unemployment taxes.
While Congress has eliminated federal quarterly returns for household employees, many states still require quarterly filings. You must check with the state of employment regarding its requirements. Perhaps the critics are correct and this new scheme is not so simple. However, it is far easier than filing Form 942 every quarter under the former procedure. In 1995 that number fell to under 300,000.