Why Household Employees Can't be on Business Payroll

Updated

Just got a call from a family in Minnesota who made a mistake everyone should learn from.

In an effort to simplify their life, they put their nanny on their company payroll and company benefits plan.  A large health insurance claim was denied by the insurance company on the grounds that she is not an employee of the company.

In addition, the company had taken illegal deductions on her payroll expense since the IRS does not view her as a direct contributor to the success of the business. The family had to amend business and personal tax returns for the last 2 years. 

Instead of taking business tax deductions, the family should have handled her payroll through their personal funds, filed household employment tax returns, and taken a personal tax deduction on those childcare expenses.

If you have any questions about how to avoid this mistake, please give us a call.

 

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