The holidays bring about more than just the end of the calendar year—they also mark the beginning of tax season. If you hired a nanny, senior caregiver or other type of household employee, not only do you have some tax-related tasks to complete, but it’s also a good idea to take care of some general housekeeping items.
To help you stay organized and not miss anything important, here are nine to-do’s that every family should complete between year-end and April 15th.
1. Talk about vacations before the holidays begin.
Make sure you discuss any holiday vacation time with your caregiver. What days will your caregiver want to take off and will you need to hire backup care? If you’re planning a vacation, will you still need your caregiver to work? Although it should be in your contract, make it clear if their vacation time is paid or unpaid.
Learn more about how to handle vacations, holidays and sick days.
2. Dole out end-of-year bonuses.
According to the latest International Nanny Association survey, about 60% of families pay a holiday or year-end bonus. The median value of the bonus is $600, but your bonus doesn’t necessarily have to be cash. Some families opt to buy something nice for their caregiver as a more personal thank you.
3. File a New Hire Report if you forgot to do so earlier in the year.
When you hire a new employee, no matter how much you pay that person, your state requires that you file a New Hire Report. If you forgot to file the form, you still have time. Just make sure you do it before the end of the year. Most states will accept your caregiver’s completed W-4 form for registration purposes.
4. Prepare a form W-2 for your caregiver.
If you paid your caregiver $2,300 or more during the year, you are responsible for providing them with a W-2, which reports wages and taxes paid throughout the year. You have from January 1st until January 31st to give your caregiver their W-2, which allows you a full month to make sure all the information on the form is correct.
5. Complete year-end household employment tax returns.
Prepare the fourth installment of Form 1040-ES to account for the remainder of last year’s federal Social Security and Medicare taxes (employer and employee portions), federal unemployment tax (FUTA) and any federal income taxes withheld from your employee’s pay.
Next, fill out a Schedule H, the form for reporting household employment taxes for the year. It needs to be included with your personal income tax return.
Lastly, check with your state (usually your Department of Revenue or Department of Labor) to see when your state income tax and unemployment insurance tax returns must be filed. Your state may also require an Annual Reconciliation form. Check the requirements in your state for details.
6. Correct any mistakes that were made last year.
“Families sometimes think that if they haven’t withheld and paid employer taxes during the year, it’s too late to make up for it,” says Tom Breedlove, director of Care.com HomePay. “But the truth is, you can go back and correct this mistake before taxes are due, with minimal penalties from the state and federal tax agencies.”
You still have time to pull together a Form W-2 and file state tax returns for the past year. Talk to your caregiver about how their paycheck will change once taxes start coming out. Use our tax calculator to help you both see the numbers. If you’re confused, call HomePay and we’ll be happy to help you start paying your caregiver on the books.
7. Look into tax credits to save on your care expenses.
If you had a nanny last year, you may be eligible to take a tax credit on the wages you paid them. “The child care tax credit can save families up to $4,000 if they have 1 child or $8,000 if they have two or more kids,” says Breedlove. “That can completely offset a family’s tax liability.”
8. Review your insurance coverage.
Check with your insurance agent to make sure you’re covered by workers’ compensation insurance in case your caregiver is injured while working in your home. Some families think their umbrella liability policy associated with homeowners insurance will protect them, but those policies only protect against accidents in your home that aren’t employee related. “Workers’ compensation is like most insurance policies; you hope you never need it, but when you do, it’s worth its weight in gold,” says Breedlove.
9. Set up an annual review with your caregiver.
Before the end of the year, schedule a time after the holiday season is over to conduct a performance review to discuss what your employee is doing well or changes you would encourage. The new year is a great time to discuss goals, responsibilities or even just to hear from your caregiver about how they’re feeling about their job.