When the Nanny Is a Ghost and So Is Your Refund
Improper household employment tax claims are making headlines as one of the IRS’s top tax scams for 2025. This scheme involves filing false information on Schedule H, such as inventing household employees or wages, to claim inflated refunds that vanish under IRS scrutiny.
What’s Schedule H For, Normally?
Schedule H is used to report employment taxes—like Social Security, Medicare, and unemployment—for household workers such as nannies, gardeners, or caregivers.
If you’ve paid someone to help around the house, and they meet the IRS definition of a household employee, their wages need to be properly reported. But in this scam, people are inventing employees who don’t exist to claim fraudulent refunds.
How the Scam Works
Promoters urge taxpayers to:
- Claim pay and sick/family leave wages for fictional household employees
- File Schedule H and receive a refund based on those fake payroll taxes
- Walk away with ill-gotten money, until the IRS chimes in
This isn’t clever; it’s fraud, plain and simple.
Why It’s Now Trending
A growing number of filings include dubious Schedule H entries, prompting the IRS to freeze refunds and demand explanations. Fraudsters prey on social media-savvy taxpayers hoping for an easy refund. Bad idea, this results in big trouble.
Red Flags to Watch
- You didn’t actually hire anyone, yet you’re claiming household wages
- Promoters promise easy refunds with no receipts or payroll records
- You’re filing deductions for sick/family leave wages that were never paid
What the IRS Is Doing
The IRS is:
- Freezing suspicious refunds
- Sending verification letters like 5747C, 4883C, and 3176C
- Flagging returns that show Schedule H claims without supporting proof
Taxpayers will need to verify real payments or remove false claims.
What You Should Do
If Schedule H was filed on your return:
- Verify you actually paid a household employee wages subject to payroll taxes.
- Gather payroll records, W-2s, cancelled checks. Proof counts.
- If you see false entries, amend your return to correct them ASAP.
- Respond promptly to IRS notices—don’t ghost them.
Penalty warning: Each fraudulent return could cost up to $5,000, and may trigger audits or even criminal prosecution.
Keep Things Legit with Smith Patrick CPAs
Don’t let your return turn into a haunted house mystery.
At Smith Patrick CPAs, we’ll verify your household employment claims, guide you through Schedule H, and correct any mistakes—no spooks attached. Just clean, honest filing.
More Information
If you have questions, contact us to discuss your situation.
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Patty Ward
Patty has more than 30 years experience in public accounting. She reviews tax returns for high net worth clients, focusing on individual tax work. Her mission is to provide high level service to her clients, reducing their tax burdens, keeping them informed and instilling confidence.
About Smith Patrick CPAs
Smith Patrick CPAs is a boutique, St. Louis-based, CPA firm dedicated to providing personal guidance on taxes, investment advice and financial service to forward-thinking businesses and financially active individuals. For over 30 years, our firm has focused on providing excellent service to business owners and high-net worth families across the country. Investment Advisory Services are offered through Wealth Management, LLC, a Registered Investment Advisor.
