Nanny Tax Forms and Procedures: What Are They All About?
Lots of families pay under the table. But is the risk worth the savings? Here's what you need to know.
There are few conversation topics that make parents more squeamish than nanny taxes. Case in point: We couldn't find any moms willing to go on the record about how they handle their nannies' income. The truth is, whether it's because taxes seem too confusing or expensive, there are a lot of families paying nannies "under the table," which is illegal.
But are the weekly savings and lack of paperwork worth the risk? "Taxes aren't optional -- they're the law," says Bob King, founder of Legally Nanny, a law firm in Irvine, Calif. "You can't buy something at Target and say, 'hey I don't feel like covering that sales tax.' And you can't hire a nanny and decide not to pay her income tax." Not only is it illegal (more on that in a minute), but it may also do your nanny a huge disservice, setting her up for a future of trying to buy a car or apply for a mortgage and having no proof of income.
Your nanny is probably the only person who spends more time with your child than you do -- are you comfortable knowing that you're both skirting the law? "One client said, 'if I know my nanny is lying to the government, what will she lie to me about?'" says King.
Here's what you need to know about paying taxes for your nanny:
What Are the Benefits of Paying Taxes?
Financial security for your nanny -- now and in the future. Paying income tax will ensure that your nanny can build a work history, collect unemployment if you have to let her go and qualify for essential government benefits like worker's compensation, Medicare and Social Security payments later in life.
Peace of mind for you. You may think, if you're not running for office, you'll never get caught not paying taxes. But it happens more often than you'd think: "The most common way that people get in trouble for not paying these taxes is when your nanny tries to file for Medicare or Social Security at some point down the road," says Amy Torres, an attorney and nanny success coach at Empowering Resolutions. Adds King: "She'll have to declare what she earned in order to qualify." And when she lists you as an employer, you get investigated.
You don't want to get caught. If you get audited, go through a messy divorce or your nanny reports her income to the IRS (see above), your under-the-table payments can come back to haunt you -- in an expensive way. "You'll be responsible for all of your nanny's back taxes, plus interest," warns King. You may also be subject to penalty fines, the amount of which can vary substantially based on IRS analysis and the severity of the case. "These fines are going up as the government is paying closer attention to household employees," notes Torres. And if you're a lawyer, doctor, or in another profession that is licensed by the state, you may face professional penalties or even lose your license.
How Much Will I Have to Pay?
You'll likely need to withhold around 13 to 20 percent of your nanny's gross wages to cover federal and state taxes (between 1 and 5 percent) as well as Medicare and Social Security (employers are responsible for 7.65 percent, while employees currently pay 5.65 percent -- this might go back to 7.65 percent in 2012), depending on your nanny's income and your own income and tax bracket.
Here's an example: Say you pay your nanny $600 per week ($15 per hour, 40 hours per week), you'll need to withhold the following from her take-home pay:
- Federal Income Tax: $75.77
- Social Security: $25.20
- Medicare: $8.70
- State Income Tax (3.7%): $22.30 (note: we used New York State. Here's where you can find your state income tax rate.)
Total withholdings: $131.97
You'll also need to make the following contributions:
- Federal Unemployment: $4.80
- Social Security: $37.20
- Medicare: $8.70
- State Unemployment: $24.60 (note: we used New York State. Find yours by contacting your state unemployment tax agency)
Total Additional Payments: $75.30
This means your weekly bill comes to $675.30 per week, and your nanny will take home $468.30. Over the course of the year, you can expect to shell out $33,991.30 -- $2,791.30 more than if you paid a flat $600 per week under the table.
Consult the IRS' Household Employers Tax Guide for more details on each of these withholdings.
Doesn't that Mean I Pay More and My Nanny Gets Less?
Week to week, yes. Household employers can't tax deduct employees' wages the way businesses can, so you end up paying the majority of your nanny's salary with your own after-tax income, notes King. And she'll take a hit in her weekly paycheck when you start withholding the government's piece of the pie. So you may need to increase your nanny's salary so that her take-home pay doesn't take as much of a hit (use this nanny tax calculator to run your own numbers).
The Good News:
You can pay with some pre-tax dollars. Ask your employer if they offer a Dependent Care Account (DCA). This lets you set up to $5,000 of your annual income aside before taxes, and then use that money to pay your childcare bill. Reducing your overall taxable income will reduce your overall tax burden, which may help balance out the extra you're paying in nanny taxes, but can get maxed-out if your child is also in a preschool program.
You may qualify for the federal dependent and childcare tax credit. This lets you claim around 20 percent of the first $3,000 you spend on childcare per child. This tax credit, combined with your DCA, can save you about $1850 per year -- meaning you're only coughing up an extra $941 at the end of the day, to pay your nanny's taxes using the numbers above. (Note: If you have one child, you'll have to choose between this tax credit and a DCA.)
Your nanny earns more in the long-term. Think of that extra $75.30 per week as a deferred raise for your nanny -- because she'll be able to collect on it when she files for Medicare, Social Security or unemployment. And she'll probably see a good chunk of what you withhold from her paycheck week to week, too: "Most nannies' salaries are low enough that they'll qualify for the Earned Income Tax Credit and get a decent refund at tax time," notes King. This should provide some assurance to your nanny if she is nervous about how she'll manage with less take-home pay.
How Do I Set Up My Tax Payments?
The most efficient way to pay taxes on your household employees is to sign up with a payroll service like Care.com Home Pay managed by Breedlove and Associates. For a quarterly fee, they'll direct deposit your nanny's paychecks to her bank account, withhold all appropriate taxes and file them electronically. They also have great free nanny tax calculators you can play with to determine how much your nanny will take home at the end of the day.
*The tax information contained in this article should not be used for any actual nanny relationship without the advice and guidance of a professional tax advisor who is familiar with all the relevant facts. The information contained herein is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for your specific circumstances and may require consideration of other matters.
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confused
You are allow to make under a certain amount of money before paying taxes.
All the best
My question is that since the family is an employer and has to file for an EID, what kind of deductions are entitled to take? Is it only subject to the childcare credit?
So if you look at the above example, you would withhold FICA and possible federal income tax from her pay, but you would ALSO pay unemployment and match her FICA dollars to the gov't which is the same that every other employer has to do.
I am no longer at that job.
Do I have any rights to OT time pay retroactively?
Who should I speak to about this matter?
That is over $10,000 a year. That is why so many are paid under the table. Families don't have the money to just pay an extra $10,000, and the nannies can't afford to work for that much less, so most nannies work under the table.
Is it legal? No, but that is just how it is.
What resonated with me in this article (besides, you know, not breaking the law) is that if one really cares about their nanny/housekeeper, they will do the right thing and not ask them to commit tax fraud.
It's harder for me, because I'm not getting employer contribution, but at the same time I can work with multiple families without the concern of whether or not each one is filing my taxes correctly. As far as I can tell this approach is totally legitimate.
That being said, if I could work for a family as a household employee I would be willing to lower my pay rate as gratitude for their contribution.
As to using a 1099? I suppose I would if I paid a sum equal to a year's worth of wages vs casual babysitting dollar amounts. The sitter I have used was a college student that had more experience and knowledge about caring for twin toddlers than I had. I didn't tell her what and how to do things. I learned from her! Anyone who doesn't acknowledge that an experienced babysitter/nanny has a very specialized set of tools is misinformed.
Thanks for the help!
See bottom of page 3 for requirements: http://www.irs.gov/pub/irs-pdf/p926.pdf
Virginia A
Also, on a subject that was mentioned in one comment above: "how do we value the room & board part of compensation? Do we and she pay taxes based on the cash wages - or does the value of the room &board have to be factored in?" The IRS does indeed consider room & board to be be an "income" to the person receiving it. (But, good luck getting a caregiver to consider that in his or her overall wages). For people "requiring" a live-in caregiver, especially if it is a "medical requirement/necessity", the room & board "expense" can be deductible -- so, it is most certainly claimed as an income to someone. It's sad to say, but in our current taxation mess, anytime there is income, deductions, expenses, etc., there IS the IRS involved. Money coming in to one person vs deductible expenses for another is always going to be a two edeged sword under our current laws. If one can claim it, another must report it.
I agree with so many above that any GOOD care giver, whether for childcare or for disabled, or elderly, ill, etc., is worth more than all but the top 2% of families can afford to pay. They earn every penny! But, that being said, we all live in the "real world." For example, my family now finds itself needing someone on a 24 hour basis to care for our Mother who has suffered a major stroke. For as long as I can remember, Mom told us to "never put me in one of those nursing homes!" So, we looked around and found that neither insurance nor Medicare will pay for 24 hr. "home" care, and the average cost for someone to live-in is somewhere around $25,000 to $30,000 a year! Mom's GROSS income last year was only $16,600, so where exactly will the "increase your nanny's salary so that her take-home pay doesn't take as much of a hit" money come from? It's just a common problem that is only going to get more common as more and more people are living longer.
I submit that the largest problem (for this and many, many other of our nation's financial woes) is the taxation system itself. What if NO income, of any sort, was taxed by the Federal Government? OK... I can see the eyes rolling already! Seriously, think about this: What if the taxation was purely a flat (i.e., EVERYONE paid the same rate -- hooboy, here we go) Sales Tax? . . . on all goods, products, services -- Every transaction. EVERYONE PAYS, EVERY TIME. No exceptions, no exemptions, no loop holes, and Absolutely NO "income" tax of ANY sort. Then, all these (tax) woes mentioned above would simply disappear. Just a thought.
Now that would be a great thing to be thankful for by next Thanksgiving Day, wouldn't it? Happy Thanksgiving everyone.
I am a nanny & babysitter. I need to show my tax return as proof of income to apply for loans, example: I'm trying to buy a minivan so I can work with 2 or 3 families & have up to 4 children at one time, so I can take home more money. That being said, I need to claim both my nanny jobs & my babysitting jobs on my taxes so I can qualify for a loan I know I can afford.
Currently I nanny 2 or 3 families & I am getting w2's. I wrote up my own agreement when the families asked me to work for them & I asked to be given a w2. (I did this, because of the first year/first family, together the family & myself were clueless about nanny taxes, we agreed wages would be under the table, but then I got a 1099 because they wanted the tax credit. Not only did I have a lot of taxes to pay, I didn't want to claim my babysitting wages because I didn't want to pay even more taxes (I was still clueless about why this was a stupid thing to do); so my taxes, my only acceptable proof of income, showed I made less than what would otherwise allow me to qualify for that auto loan.
With two families, or a nanny share, I can get paid more with the income combined but the families individually save money & pay me less.
However I babysit for about ten other families evening and weekends. One family paid me a total of $900 for the year, several other families paid me $700 each for the year, others less or more. I consider my babysitting as self employed work so I will be paying self-employed taxes, but the families don't need to file anything and can pay me cash. I am sending these families a year end receipt and a w9 with my newly acquired EIN, so they can file to get the tax credit if they want, but also to make the families aware that as a career nanny/babysitter, I am in fact paying taxes on the cash wages they pay me. But my taxes I owe is a lot more than I saved up to pay, & now I know I need to pay quarterly taxes this year. Because I am paying higher, self-employed taxes on my babysitting wages, but not my nanny income, I will be raising my babysitting rates to make up for all the self-employed taxes I am paying for those cash wages.
This is Stephanie Breedlove with Breedlove & Associates. We are Care.com's partner for household employer payroll and taxes. To answer your question, the law requires your nanny to be paid an hourly rate based on her GROSS wages.
Whenever you are looking at an average hourly rate or annual earnings, it is based on gross wages. The reason is that a nanny's net (take-home) pay will be different for most nannies because the tax bracket they are in determines the amount of federal income tax that must be withheld from their paycheck. Also, the state you live in will determine if and how much state income tax needs to be withheld.
Feel free to visit www.breedlove.com and use our calculators to help get a detailed breakdown of your nanny's net pay and the employer taxes you will need to withhold. And please give us a call if we can help you over the phone!
Having said that, if you contribute to your employee's health insurance, the amount you contribute is non-taxable compensation so neither you nor your employee have any taxes on that portion of the compensation. Additionally, if your employer contribution is at least 50% of the cost of the premium and the annual wage for your employee is less than $50,000, you can take advantage of the Health Insurance Tax Credit for Small Employers, which provides a tax savings of up to 35% on each dollar you contribute.
Bottom line is health insurance can be a smart part of the compensation package and provide real tax advantages. For more info, visit our Expert Advice section at breedlove.com: http://www.mybreedlove.com/Answers/GetAnswers.aspx
The casual babysitting threshold is $1,800 in a calendar year. Below that amount, the family does not have to withhold any taxes from your pay or pay into your social security and medicare account. At $2,400 in a year, however, they are required to report the wages and provide you with a Form W-2 at the end of the year. The good news for them is the employer taxes would be about $200, which will be more than offset by childcare tax breaks.
You are required by law to report all of your income on your Form 1040 -- even if you don't get a W-2 from your employer. So protecting her puts you at risk. (FYI...I don't know what the rest of your earnings are, but at $2,400 per year, you wouldn't have any income tax burden).
I provide all food and drinks for the kids in my home, so according to my knowledge, I could deduct the standard things that I have been used to deducting for years with my direct sales business such as a portion of the rent/mortgage for operating out of my home, my cell, my internet, mileage, and now, a portion of my grocery bills as well. Am I completely wrong on this? Hope not!!!! I have no intention of skirting the laws, just was oblivious to the fact that this was going to be considered anything other than "self-employed". I repeat, I am not a nanny, but rather operate out of my own home. I do not have state licensing nor do I have a business name/LLC/or other licensing.
I keep track of all my income, whether the families are claiming me or not, and I issue homemade receipts to my families that request it. Any advice/help is much appreciated! :)
You should not get Form 1099s from your families. They are legally your employers. However, if each of the families pays you less than $1,800 in a calendar year, they don't have to give you a Form W-2. If you're under the threshold and don't have a W-2, you report the income on your 1040 by putting the total of all wages not reported on a W-2 on line 7. Then write the letters "HSH" (the code for household employment). Alternatively, you can fill out Form 4852, which is the substitute for Form W-2. The first method is easier if you have several families.
Regarding mileage, you can itemize your mileage expenses on your personal income tax return -- IF it wasn't reimbursed by your families and it's on-the-job driving...commuter miles to and from the job site cannot be itemized.
Hope that helps!
My name is Stephanie Breedlove, founder and CEO of Care.com's payroll team at Breedlove & Associates. If the family paid you more than $1,800 during the calendar year (probably did if you worked for 7 months), they should have withheld FICA taxes (social security and medicare) from your pay. Withholding your income taxes is recommended but not required by law.
Assuming the $1,800 threshold was crossed, she is required to give you a Form W-2. You should ask again, but if you don't get a W-2 from her, your only recourse is to file your income tax return without it -- you'll have to write in the total wages that should have been reported on that W-2 on line 7 of Form 1040 along with the letters "HSH" (code for household employment). This protects you because you've done what you're supposed to do as a taxpayer. However, your employer needs to know that this could trigger an audit for them.
There is no distinction between "nanny" and "babysitter" from a tax perspective. Once you cross the wage threshold of $1,800 from a family, you're a formal employee -- and all household employees (i.e. nannies, babysitters, doulas, home health aides, housekeepers, etc.) are treated the same.
Hope that helps and best of luck...try www.breedlove.com or call us for more info.
You bring up a VERY common question we hear all the time from our Breedlove & Associates clients. I'll address the overtime portion of your question first:
Because nannies and other household employees are considered "non-exempt" workers, the Fair Labor Standards Act (FLSA) says they must be paid overtime (time-and-a-half) for any hours they work over 40 in a 7-day workweek. The main exception to this rule is if your nanny is a live-in nanny. Live-in employees do not have to be paid overtime, but they still must be paid their normal hourly rate for all hours they work.
As you can probably see, if your nanny ends up working overtime and you pay her a weekly salary, you've got a bit of math to do. You'll have to convert her salary to an hourly rate spread across 40 hours and then calculate what her overtime rate will be and apply it to her overtime hours. It can be quite tedious and time-consuming, especially if your nanny's hours change from week to week.
That's why we recommend simply negotiating an hourly rate with your nanny to make life a bit easier. For instance, if you pay her $16/hour, her overtime rate will be $24/hour for the hours over 40 she works in a workweek. Those 2 rates can be applied every week and will help you avoid any payroll calculation mistakes.
If you need any other assistance, feel free to visit www.breedlove.com or give us a call.
I get 600 a month from my Sister for 45 hours a week under the table. We.are.trying to establish everything legally
Now with a contract and taxes taken out. Obviously 600 a month for full time work, isn't, much and going the tax route moo
Woukd take a chunk out of,my already small, paycheck. My cousin who,is also a nanny have he the info when we do,it want
All,correctly she,legally has to pay me minimum wage per hour. It, makes sense to me but can't find any info on it. Doors she have to? We both want to do everything legally and fairly. Business with family isn't easy but in the end I don't dont
You definitely have a lot of factors going on in your situation and it's admirable that you take care of your niece and that you and your sister understand the need to pay legally. Before I begin to answer your questions, I want you to know that because I don't know what state you live in, I'm going to give you what is accurate for MOST states. Also, because you only gave me information on how your sister is paying you, all my answers will focus on that situation.
First, you are correct that you MUST be paid at least the federal minimum wage for the first 40 hours you work during a 7-day workweek according to the Fair Labor Standards Act (FLSA). Federal minimum wage for 2013 is $7.25 per hour. Any hours you work over 40 MUST be paid at an overtime rate of time-and-half, or 1.5 times your hourly rate. That means at a minimum, you need to be paid $10.88 per hour for every hour over 40 you work in a workweek. Since you said you work 45 hours per week, you should earn a minimum of $344.40 per week, which you clearly do because you said you make $600 every week in salary.
That being said, I highly recommend you and your sister negotiate an hourly rate for you to be paid on. The reason is that given your current $600 per week in salary for 45 hours, you are being paid roughly $12.64 per hour for your first 40 hours of work and $18.96 per hour for the additional 5 hours. Any fluctuation in your hours therefore affects your hourly rate, meaning that some weeks you could be underpaid and others you could be overpaid. It will be much easier for you and your sister to keep track of your overtime if you can agree upon an hourly rate.
I understand you are concerned with some additional weekend and overnight time you spend with your niece. This is a conversation you should have with your sister to define when you are working and when you are simply visiting. If you are working, you need to be performing your work duties and your sister needs to be compensating you for those hours. You mention wanting to have a contract set up between you and your sister and that is a fantastic way to make sure everyone is on the same page.
That brings me to your final question about vacation and sick days. The FLSA does not require household employers provide their employees with vacation or sick days and almost all the states do not require them as well. However, this topic can be addressed with your sister when the two of you are writing up your contract. As long as you have an employment contract in writing, you are entitled to the benefits in it.
I hope I answered all your questions thoroughly Angel and I would recommend you and your sister visit our website at www.breedlove.com and use our budget calculators. You'll be able to figure out EXACTLY what taxes should be withheld from your pay and what taxes your sister will need to pay given the state you live in. There is also information about tax credits your sister can use to help save money on the taxes she will have to pay.
I work full time and I keep 1 child part time after school in my home. I make 500 a month for keeping the child. The mom didn't take out taxes and I didn't set any aside. Now she is reporting to the IRS and it looks as if i'm going to be responsible for paying all the taxes. it woulnt be a problem if the money was worth it but that means I would have made approx.$5.00 an hour if that much. I don't think its fair. I didn't keep any of the receipts for food,and other things I provided. I provide snack,dinner,comb hair,required to bathe,have homework completed and pick up from school. Can I deducted anything without receipts.
Since you made $6,000 last year, you definitely cross a threshold that triggers taxes being withheld from your pay and taxes to be paid by the family you work for. Any household employee (babysitter, nanny, personal assistant, etc.) that earns $1,800 or more in a calendar year must have Social Security and Medicare (FICA) taxes withheld from their pay. I would also recommend federal and state income taxes (if you live in a state with income taxes) be withheld as well - although it's not required for household employees. The reason is that if you do not pay these income taxes throughout the year, you could find yourself with a large tax burden at the end of the year.
The family you work for will also be required to pay Social Security and Medicare taxes on top of the wages they paid you, as well as pay federal and state unemployment insurance taxes. The family should have given you a W-2 by January 31 so you could report your wages, but you should ask again if you did not receive one. Unfortunately, if you don't get a W-2, your only recourse to legally disclosing your pay is to file your income tax return without it. You'll have to write in the total wages that should have been reported on that W-2 on line 7 of Form 1040 along with the letters "HSH" (code for household employment). This protects you because you've done what you're supposed to do as a taxpayer. However, the family needs to know that this could trigger an audit for them as well as make them liable for paying both the FICA taxes they should have withheld from your pay AND the FICA taxes they did not pay on top of your wages.
As far as your pay rate goes, without knowing the amount of hours you worked, I can't accurately comment on whether you were paid a "fair" amount. All I can tell you is that the Fair Labor Standards Act (FLSA) requires you to be paid at least the federal minimum wage rate of $7.25 per hour and that you should be paid overtime (time-and-a-half) for any hours over 40 you work in a 7-day workweek. This is a gross wage rate (before taxes), rather than a net pay rate (after taxes).
You also mentioned providing snacks and dinner for the child you care for as well as picking the child up from school. These expenses you incurred are considered reimbursable, but are not considered wages, so no taxes should be paid on them. Simply put, you should provide the family with the total cost of the food and they should pay you back for those expenses. To calculate your reimbursement for driving to the child's school to pick him/her up and taking him/her to your home, use the federal mileage reimbursement rate of 55.5 cents per mile (2012 rate).
I know this seems like a lot of information to take in all at once. If you or the family you work for need additionally resources or have questions, please visit www.breedlove.com or call for a free consultation. We'll be happy to help!
Most states have income taxes that should be withheld from an employee's pay. I say "should" because household employees are not explicitly required to have state income taxes withheld from their pay. However, if it's not withheld, the employee may end up with a large tax burden at the end of the year.
As far as unemployment insurance taxes go, those are almost always taxes paid by the employer, so they are not withheld from an employee's pay. The exceptions (there always are a few in the tax world) are Alaska, New Jersey and Pennsylvania and they require a very small amount of unemployment taxes to be withheld from an employee's pay, but the majority of the tax is still paid by the employer.
I hope both had a great weekend! Jennifer, the family you work for should have your SSN on file because they need it in order to provide you with a W-2 so you can file your personal income tax return. You can file your tax return by using one of the free filing services listed on the IRS' website.
Nyree, if you are considered a household employee, you should receive another W-2 from the family you work for, but it seems as if the tax return service you are using is indeed looking at you as a childcare business or independent contractor. Without all your information in front of me, it is hard for me to determine 100% whether that is the correct classification for you. I would highly suggest you visit the IRS' website and take a look at the "Independent Contractor or Employee?" page. You should be able to figure out where you stand. The tax rules for independent contractors or self-employed businesses are different than for household employers.
You both have similar questions that are very common for this time of the year. Kevin, the difference between a household employee and an independent contractor lies in who is in control of the working relationship. Generally speaking, if you control the hours someone works, the job duties they perform and other aspects of the working relationship, the person is your employee and should receive a W-2. Without knowing the full details of your working relationship, I can't 100% say whether the caregiver is operating an in-home daycare or if she is your employee. However, if you visit the IRS' website and take a look at the "Independent Contractor or Employee?" page, you should be able to figure out where you stand.
Lynn, household employees are required to have a W-2 sent to them by their employer. It summarizes not only the gross wages you earned for the year, but also how much Social Security, Medicare and federal and state income taxes were withheld from your pay. Since you mentioned your employer is paying you on the books, these taxes will have already been withheld from your pay. The most common way you would be responsible for an additional tax liability is if the allowances you claimed on your W-4 resulted in not enough federal income tax being withheld from your pay.
Jennifer Z: By making $5,200 last year, you should have had Social Security and Medicare taxes withheld from your pay and you should have received a W-2 from the family. If the family isn't willing to provide you with a W-2, you will have to file Form 4852 which substitutes for the W-2. By filing Form 4852, you fulfill your obligation of reporting your wages and/or taxes withheld, but please be aware that filling this form out could trigger an IRS audit for the family you work for.
Carol: You are considered a household employee, not self-employed, because you do not have control of the working relationship. You do not need to worry about Social Security and Medicare taxes being withheld from your pay or your daughter having to report your wages because you are exempt according to IRS Publication 926. This publication sets the tax rules for household employers and specifically states to exempt wages paid to a parent. However, the Fair Labor Standards Act (FLSA) does not have an exemption for minimum wage concerning parents, so you should be paid at least the federal minimum wage of $7.25 per hour.
Tammy: The FLSA defines a workweek as 7 consecutive 24-hour periods. The workweek can begin on any day of the week and doesn't have to coincide with the standard calendar week. So for overtime, any hours worked over 40 during what the employer defines as the standard workweek should be paid at 1.5 times the normal rate. The employer can change the day a workweek begins, but only if the change is intended to be permanent and not used to get around paying overtime to an employee.
Jennifer P: Since you provide in-home childcare, it's tough for me to determine with 100% certainty if you are self-employed or a household employee. If you are a household employee, then both families would need to provide you with a W-2. If you visit the IRS' website, there is a page entitled "Independent Contractor or Employee?" that has information to help you determine what you should be classified as. It has proven to be very helpful for many people in your situation.
We are hiring a part time caregiver for our child in our home. We would be over the $1,800 threshold per year, but I also contribute $5,000.00 to my dependent daycare through my employer. I am trying to find out exactly what we need to do in regards to taxes, forms, etc with the person we are hiring. I'm not sure what I need to do. Any information you could provide would be very helpful.
Thank you, Linda
There is a bit of legwork you'll have to do to get everything set up for your new employee:
- Register for federal and state tax IDs with the IRS and the agency in your state
- File a new hire report
- Have your employee fill out a W-4 so you can calculate her federal income tax withholding. If you live in a state with incomes taxes, your employee will need to fill out your state's version of the W-4 as well.
- Your employee will also need to fill out Form I-9, which verifies work eligibility
These steps cover the setup process. There are other responsibilities you'll have throughout the year as well and you can find those in the Answers section at www.breedlove.com. As far as your dependent care FSA goes, you simply have to provide a record of your employee's wages to prove the money you are setting aside is going to a qualified childcare expense.
The family would need to pay you at least the federal minimum wage of $7.25 per hour and overtime for the additional 5 hours if you are considered a household employee. However, without more details on the childcare arrangement you have, I can't 100% say you are a household employee because you provide care in your own home. You may be considered self-employed depending on who is in control of the working relationship. The IRS has a great page on their website called "Independent Contractor or Employee?" that I would suggest taking a look at.
You are correct that the IRS considers you to be a household employee and that you should receive a W-2 from the family you nanny for. The family should actually be the one applying for a Federal EIN and setting up tax accounts with the state for unemployment insurance taxes and most likely state income taxes. I would suggest sitting down with the family you nanny for and have them visit our website, www.breedlove.com. We have a compliance checklist on our site that will help them figure out what they need to do as a household employer. And please have them give us a call if they have questions.
Here is an article you may find useful. You can use it as a guide when you're setting up a meeting with a nanny tax accountant.
http://www.care.com/child-care-5-questions-to-ask-before-you-hire-a-nanny-tax-accountant-p1017-q23708377.html
I hope that helps!
Families in Oregon can technically pay a nanny a fixed weekly amount, but I don't recommend it because nannies are non-exempt employees according to the Fair Labor Standards Act and must be paid at least minimum wage and overtime for all hours worked over 40 during a 7-day workweek. In Oregon, minimum wage is currently $8.95 per hour. If the nanny's hours vary week to week like yours seem to do, it affects your hourly rate of pay which risks dropping below minimum wage. However, you cannot determine if you are below minimum wage by calculating it based off the $325 check you receive every week. That is your net (after taxes) pay and minimum wage is calculated based off your gross (before taxes) pay.
My recommendation is to ask the family to pay you hourly. Since you say they are paying taxes, it will be much easier for them to calculate their tax payments this way. Right now, they have to "gross up" your pay every single week to account for any change in your hours, including overtime. This is the only way to ensure they are paying the correct amount of employer taxes. You should also ask them about your W-2. If they have paid taxes throughout the year, it will be fairly easy for them to provide you with one and you will need it to file your personal income taxes.
In terms of unemployment, if the family decides to place the child in daycare and lets you go, you will most likely qualify for benefits if the family has been paying taxes. You would apply for benefits with the Oregon Employment Department and they will determine your eligibility based on your application and any response the family provides in respect to how you were let go from your job.
Lastly, you mention signing a form for the mother on behalf on her employer. This is most likely a form the mother uses to have your wages be applied to a Flexible Spending Account she has set up through her employer. Families can set aside up to $5,000 of their pre-tax wages in this account to pay for childcare expenses, which helps make hiring a nanny a little more affordable.
You certainly have a lot going on Hilary, and I feel like you and the family would benefit from a discussion on how you are paid and how your taxes work. Please use our website, www.breedlove.com, as a resource and I wish you the best of luck going forward.
Last year I worked as a Nanny in home for a family in FL. I made 18906.07 in wages over an 11 month period. I just received my W2 and it shows that my employer did not withhold any Federal Income Taxes. This is causing me to owe over $1000 in taxes... something that is completely shocking to me. I was under the impression that the employer was required to withhold all taxes, Federal, Social Security and Medicare. Was I wrong in assuming this? Is there anything I can do or am I stuck paying this massive amount? Thanks in advance for your help.
Hannah
I'm really sorry to be the bearer of bad news, but household workers are one of the few types of employees that are only required to have Social Security and Medicare taxes withheld from their pay. Federal and state income tax withholding is optional, so the family is not doing anything wrong. However, I always recommend families withhold these taxes from their employees so your exact situation does not come up. Unfortunately, you do owe the $1,000 you mention because nearly everyone who earns wages has an obligation to pay federal income taxes on it. What you owe is an aggregation of 11 months' worth of federal income taxes that could have been deducted from your pay each pay period.
The best way to fix this moving forward it to talk to the family you nanny for and let them know you want federal income taxes withheld from your pay. You should fill out a Form W-4 which is a worksheet that will calculate the number of allowances you will take. The family will then use that form to determine how much in federal income taxes should be withheld every pay period. This will ensure you won't owe $1,000 this time next year. There is a handy nanny tax calculator on our website at www.breedlove.com that will allow you to download a W4 and figure out how much in federal income taxes will be deducted from you pay based on how you fill it out.
thanks
What I would suggest doing is making sure you and your nanny are on the same page about the hours she will be expected to work. It will probably be different from what you're both used to. Remember, your nanny is required to be paid overtime for any hours over 40 she works during a 7-day workweek. I hope that answers your question and have fun on your business trip!
The family will also pay Social Security and Medicare taxes on the wages they pay you and will have to pay unemployment taxes and perhaps another small tax depending on what state you live in.
I would recommend both you and the family visit our website at www.breedlove.com and familiarize yourself with all the nanny tax obligations. They are unfortunately too much for me to cover in this type of forum. Please feel free to call our office as well and one of our staff can help answer your questions.
Additionally, feel free to check out this article as well for additional information:
http://www.care.com/child-care-how-to-get-started-creating-a-nanny-payroll-account-p1017-q20741251.html
Based on your description, it does sound like you had a household employee for 5 months. Because there were no taxes withheld, you will either have to cover the nanny's taxes yourself or ask her to pay you back. There is a compliance checklist on our website (http://www.breedlove.com/Answers/ExpertAdvice/ComplianceChecklist.aspx) that outlines the various items household employers must complete. I'm sorry to hear you are just finding out about your nanny tax obligations and I wish you the best of luck in getting this situation straightened out.
The Tax Credit for Child and Dependent Care (IRS Form 2441) is available for families who have childcare expenses. However, if the family is not paying taxes on your wages or withholding taxes from you, they will not be eligible to take the tax credit.
Because you are a household employee and not an independent contractor, you don't pay taxes on the wages you earn. Instead, taxes are supposed to be withheld from your pay throughout the year. The only exception is federal and state income taxes which technically don't have to be withheld from your pay, but must still be paid. Nannies who don't have these taxes withheld throughout the year will likely have to pay them in a lump sum when they file their personal income tax return.
I'm really sorry to hear you didn't have taxes withheld last year. Believe it or not, I hear from nannies just like you every year. With very few exceptions, nannies are required to have Social Security and Medicare taxes withheld from their pay and should either pay or have federal and state income taxes withheld as well. And just like all other workers, nannies are required to report their income and pay the appropriate taxes. The good news is you have a couple of options at your disposal for getting this all straightened out:
1) You can talk with the family and ask for them to take care of their nanny tax obligations. They will need to catch up on paying the previous 4 quarters worth of employment taxes and issue you a W-2 so you can file your personal income tax return. Feel free to use our website, www.breedlove.com, as a resource for all the family's household employer tax requirements. It will also be a good opportunity for you to ask for an employment contract so you and the family can be on the same page moving forward. If the family agrees to this process, you will most likely need to apply for an extension on filing your personal income tax return as the catching-up process for the family will probably not be complete before April 15th. I would suggest asking for help from a tax preparer to make sure this is handled properly.
2) If the family is not willing to go through the process of becoming nanny tax compliant, you will have to file Form 4852 which substitutes for the W-2. By filing Form 4852, you fulfill your obligation of reporting your wages and paying the taxes that should have been withheld. Just be aware that filing this form can trigger an IRS audit for the family.
I hope you get everything worked out in a positive manner Steph!
Abigail: Your son does not need to report the money his ex-wife is giving to him. As the father, he is simply spending time with his child and is not an employee. If you do decide to take over the childcare responsibilities for your grandchild, I would take the conservative approach and have Social Security and Medicare taxes withheld. Your daughter-in-law will need to establish herself as a household employer with the IRS and state agencies to get this process started.
Tiffani: The family will provide you with a W-2 at the end of the year, so don't worry about having to generate one on your own. As far as taxes are concerned, the household employment industry is different than most occupations because only Social Security and Medicare taxes are required to be withheld from your pay. Federal and state income taxes are still required to be paid, but are not required to be withheld by the family. In your interview, I would suggest asking the family if they will withhold income taxes. If they do not, you have to either pay them in 4 estimated payments throughout the year to the IRS using Form 1040-ES or all at once when you file your personal income tax return. If you choose the all at once option, you may have a tax bill rather than a tax refund.
In terms of hiring a caregiver, the income you make should not impact how the employment situation will be for whoever you and your wife decide to hire. You will still be considered a household employer and will be responsible for the appropriate payroll and tax requirements. I would however suggest talking to someone at your local VA office to see if there are any special rules concerning the hiring of a caregiver.
Gini
As far as your question goes, at $250 per week, you will certainly cross the $1,800 threshold to have taxes withheld this year. The family will be required to withhold Social Security and Medicare taxes and I would also recommend federal and state income taxes be withheld as well so you don't have to pay those all at once at the end of the year. By having taxes withheld throughout the year, you are "paying" taxes by having them deducted from your gross pay each pay period. When the family pays their employment taxes to the IRS and state agencies, they are also giving these organizations the amount of money they withheld from your pay on your behalf.
He also wants to give me the 90% for childcare camp and have me pay it so I can write that off? (I have my son as the tax dependent)
Is that illegal, the court order says he is supposed to pay 90% but it doesn't say he has to pay it directly.
Thank you!
1) They may incorrectly think you are an independent contractor. Families can deduct childcare expenses on things like daycare, so if a true independent contractor is running an in-home daycare, the family would need that person's Social Security number to claim a childcare tax credit. An independent contractor is also responsible for paying all employment taxes, so that may be why they are asking you to sign paperwork acknowledging this. However, nannies are classified as household employees, so the family is actually responsible for managing your payroll and taxes.
2) The family may be asking you to cover your own federal (and most likely state) income taxes, which technically you are responsible for. Most families will withhold these taxes from you every pay period, but they are only required by law to withhold Social Security and Medicare (FICA) taxes from your pay. By having income taxes withheld, you are making several small payments throughout the year to cover your tax liability and you don't even notice it. But if you don't have these taxes withheld, you will have to pay the entire tax sum at the end of the year when you file your personal income tax return and that can be expensive.
Either way, I would recommend talking to the family to make sure they understand you are an employee and that all the appropriate taxes are being withheld. If you or the family need additional help, please visit the Answers section at www.breedlove.com. We have a compliance checklist for the family as well as answers to a lot of the questions that tend to confuse people about payroll and taxes.
My husband and I are actively interviewing nannies. Our job posting made it perfectly clear that we wish to withhold all appropriate taxes for our new household employee.
Our dilemma: the top candidate, upon interviewing, noted that she is on one year's leave of absence from her current position, and that although she would like us to do withholding from her monthly (her preference) check, she would like us to wait to pay those taxes until April, which is evidently the time by which she needs to let her employer know whether she is returning. As a condition of her leave, evidently, she cannot be employed in a capacity where she might be earning enough to generate taxable income. Does this sound like a feasible option for an employer to withhold throughout the year, and then pay all at once, at the employee's behest? It sounds fishy to us, but on cursory review of IRS pub. 926, it looks like we'd be able to pay it all in April, when we would normally file taxes. But, to add an interesting twist, my husband has begun a new business, and will be paying quarterly taxes with his business... Help!
From a tax reporting standpoint, you will have to show this employee's wages to the state every quarter when you file state employment tax returns. The forms will ask for her Social Security number and gross wages, so there's no way around reporting her income. I'm not sure how or why your tax reporting is getting entangled with her previous employment arrangement, but I don't see how you can fulfill your nanny tax obligations while "hiding" these wages. If it were me, I'd follow the law and tell her that her previous arrangement is between her and her former employer.
Finally, I'd like to remind you to not pay your nanny through your husband's new business. I'm not sure if that was why you mentioned it in your question, but that's a fairly common mistake among business owners. (It's illegal because the nanny is a household employee and doesn't contribute toward the success of the business). I hope I answered all your questions and good luck to you moving forward!