Preparing personal income tax returns will be different this year for many families due to the challenges presented by COVID-19 in 2020. This is especially true for families who had a nanny, in-home senior caregiver or other household employee last year. The combination of changing how care was provided and the introduction of multiple new pieces of federal legislation mean many families will have to prepare their 2020 tax returns in a different way than they have in years past.
If you fall into one of these following three scenarios, make sure you pay close attention to how you prepare your household employee’s W-2 and your personal income tax return.
1. You provided your employee with paid leave because of COVID-19 concerns
The Families First Act gave your nanny or caregiver the ability to take paid sick leave and paid family leave. If they ended up needing to use it, you’ll need to include a statement of those wages along with the W-2 you send to your employee. Additionally, if you applied for the tax credits associated with providing paid leave, you’ll need to reconcile this on the Schedule H you’ll attach to your personal income tax return.
2. You created a nanny share or learning pod with another family
Many families could not utilize their usual day care or school in 2020 and opted to team up with another family or two to hire someone to provide care, education or both. If you set up one of these learning pods, nanny shares or care shares, and paid the person you hired at least $2,200 over the course of 2020, you may be responsible for household employment taxes. This means you need to provide your caregiver with a W-2 and file a Schedule H with your tax return, among other responsibilities.
If you were unaware that you had to manage your caregiver this way, reach out to us and we can help get you caught up on your taxes so both you and your caregiver can file tax returns by the April 15th deadline.
3. You hired multiple nannies or caregivers in 2020
Many families unfortunately had to let their caregiver go at some point last year, but ended up hiring short-term care during the summer months or when school returned in the fall. While you may be used to managing just one nanny or caregiver, the IRS says that any household employee earning $2,200 or more during the year must receive a W-2 from you during tax season. Additionally, if any household employee earned $2,200 or more from you last year, any other wages you paid to other household employees must be reported on your Schedule H when you file your personal income tax return.
If you’re a HomePay client, we already have these scenarios taken care of for you. But if you’re not using our service and need help, just give us a call at (888) 273-3356 and we can start the process of getting your taxes in order.
Next steps:
Read more about how to manage household employment taxes and payroll
See how the Child Care Tax Credit can save money on your taxes
* The information contained in this article is general in nature, may not be applicable to your specific circumstances, and is not intended to be a substitute for or relied upon as personalized tax or legal advice.