Every American dreads this date. APRIL 15th! We see images of adding machine tape, lines at the post office, and piles of tax receipts. January is the month household employers deliver W-2 forms to their nanny, housekeeper and other household employees. After a month of frantic phone calls from employers and caregivers alike pleading for tax help, I can offer the following reflections:
- Nannies, request that your employers withhold your income taxes! Too many nannies are shocked when they receive a W-2 that shows no income tax withholding! Most don't realize that for the single nanny making $600 a week, the nanny could owe $2,500 in Federal Income Taxes and another $500 - $1000 in state taxes, all due on April 15th! Yes, you might see a $60 a week reduction in your take-home pay but you would be assured of not having this type of problem next year. Need to "clear" a certain amount after taxes? Research what your gross salary requirements are before interviewing. Ask the agency personnel or run some calculations at the HomeWork Solutions website.
- Employers, don't wait until February to compute how much your nanny or senion caregiver owes you for Social Security taxes. It is unrealistic to give the nanny $600 per week for a year and then decide that they owe you $2400 for back Social Security Taxes. Employers are responsible to deduct these taxes from the nanny's pay; if they fail to deduct they are still responsible for remitting the nanny's portion of the tax. Taxes should be collected from every pay check.
- Nanny referral agencies, do advise your families that they may have employment tax responsibilities! Families continue to complain that "No One Told Me..." As a wet-behind-the-ears nanny employer in 1986 the nanny contract I received through a fabulous agency (an INA member) specifically spelled out that my husband and I were responsible for employment taxes. It was up to me to figure out how to do it ... hence the start of HomeWork Solutions a few years later ... but it was clear to all parties that it was to be done!
- IRS audits target families who pay their babysitters under the table. New nanny employers generally don't realize that Federal household employment taxes are collected with and an integral part of the family's personal federal income tax return. Failure to pay these taxes can compromise the employer's personal tax return. The IRS reports that families caught lying can be charged with tax fraud and perjury, offenses that trigger enormous penalties (often double the original tax due plus the family's professional fees to accountants and/or attorneys). The IRS characterizes these enforcement efforts as protecting the Social Security benefits of domestic workers.
- Issuing the Nanny or Senior Caregiver a 1099 Form is Not the Answer. Self-employed persons – independent contractors – have their income reported to the IRS by the payers on a 1099 form. These individuals pay both the employer and employee contributions to Social Security and Medicare
- Nannies and Families, there are many risks with payments "under the table." There is the story of the nanny happily engaged with a family for 2+ years, off books, and then found herself in a high-risk pregnancy. When the choice was between applying for disability insurance benefits to make the rent while she was off work or keeping silent about her years of employment and forgoing the benefits, we can all guess as to the choice she made. Or the family with complex tax problems whose accountant would not sign their tax return unless they reported the nanny wages and paid the taxes; the nanny was handed a W-2 on April 5 and she discovered she owed $1900 in income taxes within 10 days! Ignorance is not bliss!
- Nannies, when you leave a position, leave a forwarding address! Timely W-2 delivery depends on your former employer knowing your address.
- Employers, record your employee's Social Security number before you make any payments! Your Dependant Care Account, Child Care Credit, and W-2 submittals require the employee's SSN. This will help you avoid becoming an IRS pen pal.