The No W-2 Dilemma

During tax season, we hear from many household employees who were paid under the table the previous year and now want help paying their taxes and reporting their income. Often they've just realized that taxes should have played a part in their compensation. But other times they're looking for advice because the family they work for doesn't wish to pay them on the books. The following case study shows what recourses employees have at their disposal and why families should not risk avoiding "nanny taxes."

The Situation

A caregiver called explaining that she had worked the final four months of last year for a family and earned roughly $6,000. The family did not withhold taxes from the caregiver and was not planning on reporting her wages. The caregiver was concerned with the fact that she would not be provided a W-2 and wanted guidance on how to report her earnings at the end of the year.

The Law

IRS Publication 926 states that families who pay a household employee $2,100 or more in a calendar year must provide them with a W-2 so they can file their personal income tax return. The deadline for employers to provide an employee with their W-2 is January 31. Employees that do not receive a W-2 by February 14 may reach out to the IRS for help. The employee provides their personal information, an estimate of their earnings and their employer's information. The IRS then sends a notice to the employer to let them know of their requirement to issue a W-2.

If still unsuccessful, the employee may report their income using Form 4852, which is a substitute for the W-2. In addition to reporting her income and any taxes that were withheld, the employee must explain how they tried to obtain a W-2 from her employer. Filing Form 4852 significantly increases the chance that the employer will be audited by the IRS.

The Outcome

Once we explained to the caregiver what she needed to do to try and obtain a W-2, she let the family know that she would be in contact with the IRS because filing taxes was important to her. The family, not wanting to risk an audit, contacted HomePay to assist with catching up on their taxes and getting their caregiver a W-2. Since they were only a few months behind, we were quickly able to file the delinquent state tax returns and prepare the family's year-end documents - including the nanny's W-2. The family and the caregiver will have no issue in filing their personal income tax returns before the April 15 deadline. And because the caregiver handled the initial conversation so professionally with the family, she is still working with them.

Scenarios like this are not uncommon. We work with families year-round that need help catching up on their household employment taxes. Our service is quick, efficient and designed to meet the needs of busy families.