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HomeWork Solutions: The Household Employment Experts

Top Nanny Payroll Questions

Posted by Kathy Webb on Nov 7, 2011 8:30:00 AM

Top_Nanny_Payroll_QuestionsWe have helped families with their nanny payroll and tax issues for nearly 20 years. Some family and nanny questions are timeless. Here is a little of what we hear. Remember, there are very thorough answers to many common questions in our online FAQ.

1. I had a serious misunderstanding with my family and left my nanny job without notice. I received a text from my employer, a lawyer, asking for my mailing address so she could "1099" me. Isn't she supposed to give me a W-2? What does this mean?

Nannies are employees of the families that they work for and the wages nannies receive are subject to Federal and State employment taxes. These employment taxes are paid to the government by the employer, and the employer is entitled to deduct your portion from your paycheck. If the employer does not deduct, THEY remain responsible for paying. YOU are responsible for your income taxes.

Your employer is legally obligated to provide you a W-2 form no later than January 31, 2012 for your 2011 employment.

2. I agreed to work for a family for cash - under the table. We agreed on a rate knowing that no taxes would be deducted or reported. My boss has been collecting money from a special tax free account, and just learned she has to pay taxes and report my income. What does this mean to me?

When you agree to work under the table both you and your employer are agreeing to violate tax law, and there can be consequences to both of you if you are caught. Fortunately for you, it sounds like this can be rectified in a timely manner assuming you are referring to 2011 wages.

Your employer will need to give you a W-2 that documents the wages you were paid. She will file this with the Social Security Administration. She will have to pay the IRS the Social Security and Medicare taxes on your wage, and will likely need to pay unemployment taxes too. Your W-2 will show that NO income tax was deducted from your wage; this is legal in household employment. You will need to complete an annual income tax return to calculate the amount of tax due, if any, and make your payment to the IRS. Don't ignore the W-2 - the IRS will know you received one and will catch up with you sooner, rather than later. Enforcement is always stepped up when there are budget deficits and government programs awaiting funding.

3. I hired a foreign nanny who is here legally on a visa but she doesn't have a Social Security Card. What do we do about the taxes?
There are two possible scenarios at play here. The first is that your nanny is both legally present and legally authorized to work in the U.S. and is simply awaiting her SSN. If that is the case, the situation will resolve in about 6 - 8 weeks as that is the typical turn around time for a Social Security Number application. You need to report all income and pay all taxes from the date she starts, whether she has the number yet or not. Depending on your state taxing authority, you may incur a small penalty on your first filing if this number is not included.

The second possible scenario is that your nanny is legally present (has a visa) but does not have authorization to work in the U.S. By hiring her you both are in violation of U.S. law. You the employer are only permitted to hire citizens, permanent residents, or legal non-immigrants with a valid work visa. She too is violating her visa. This is a somewhat common occurrence with foreign students admitted to the U.S. to pursue university studies. You will have all of the employment tax obligations of an employer - the IRS does not care if your nanny is legal to work or not. Your nanny will file a W-7 application for a Individual Taxpayer ID Number (ITIN) with her first tax return (usually a 1040NR) and be issued an identifying number by the IRS. Therefore, for the first year all of your filings will be missing a SSN/ITIN, but in future year filings you will be able to utilize her ITIN for tax payment purposes.

All US employers, including household employers, are legally required to verify the work eligibility of newly hired workers using DHS Form I-9.

Do you have a question about nanny payroll? Feel free to ask below!


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Topics: nanny income tax, nanny payroll tax, nanny independent contractor

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