Managing Household Payroll: A CPA’s Guide to Navigating Your Clients’ Nanny Taxes

For CPAs, now is a great time of year to ensure clients with household employees—like nannies—are doing things the right way to make tax time easier for them and for you. It’s ideal if these clients have diligently tracked hours, issued accurate paychecks with the appropriate Social Security and Medicare taxes withheld, and kept up with quarterly unemployment tax filings and W-2 distribution. Unfortunately, this scenario is more the exception than the rule. Many employers of household employees are either not fully aware of their responsibilities or find themselves too pressed for time to manage them effectively, often creating additional workload for their CPAs.

Proper Classification of Household Employees In today's gig economy, many clients hire nannies or senior caregivers through online platforms without realizing these workers are legally their employees. The US Department of Labor has emphasized that "Most workers are employees," highlighting that issuing a W-2, complying with state and federal unemployment taxes, and adhering to FLSA standards for minimum wage and overtime are not just best practices but legal requirements. These are a priority for both Federal and state enforcement.

Back Taxes and Future Compliance It’s never too late to start good habits. Encouraging clients to implement better practices now can save significant time and money in the future. Starting with a detailed work agreement can set clear expectations and prevent misunderstandings. Here are a few musts to include:

• Hourly Pay: Household employees must be paid for every hour worked, as stipulated by the Fair Labor Standards Act (FLSA).
• Overtime: Employees should receive at least 1.5 times their regular hourly rate for any hours worked beyond 40 per week, under federal law. Some states have additional daily overtime laws.
• Time Off: While federal law doesn’t mandate paid time off for household employees, certain states and municipalities do. It’s important to know the local requirements and establish clear policies.
• Tax Withholding: A transparent discussion about tax withholdings should be part of the hiring process to avoid costly errors later on.

For clients who struggle with these responsibilities, HomeWork Solutions’ Household Payroll Services can take over, ensuring compliance and peace of mind. Our experts handle everything from payroll to tax filings, a completed Schedule H for you to include with their tax returns, all without stress on you or your clients. We can even assist with household employer taxes for previous years, freeing you to focus on broader tax issues.

To start the journey towards stress-free household payroll management, encourage your clients to reach out to us at 1-800-626-4829 for a free consultation or visit our website to learn more about our services. At HomeWork Solutions, we’re not just a service provider; we’re part of your team, ensuring your clients' financial duties are managed with precision and care.