A Nanny Tax Case Study
Its true! Ignoring the nanny taxes opens up a whole host of complications and not a single one gets better if you ignore it!
Background:
A client with a new baby hired a nanny in the spring. They mutually agreed that this work would be on the books, and the family reached out to HomeWork Solutions for help understanding the deductions and what the budget and net pay check would look like. So far so good. They began the enrollment process with HWS, but never completed the process, despite numerous gently reminders via email and telephone.
Fast forward to January and the nanny pushed the new mom for her W-2 form. Perfectly reasonable, as the client had been deducting the taxes all along. The client finally completed the enrollment process and in late January we had all the information on back wages to complete the nanny's W-2 form and present the tax returns to the client for filing and payment. Okay then, we are back on track.
Fast forward 60 days and the client began receiving notices of missing and past due tax reports. Turns out she gave the W-2 to the nanny, who filed her taxes, and put all the tax returns in a "to deal with later" pile. Later had arrived.
The Challenge:
Postponing getting the nanny tax situation in order put both the family and the nanny in an uncomfortable position. When it reached a crisis, the client did the minimum needed to put her nanny back in a good spot. However not paying the taxes had a snowball effect that was even worse than the initial challenge. The client received a panic call from her nanny one fine day telling her the sheriff had visited the home and posted a notice of a tax lien on the front door!
The client is an attorney, and she was well aware of the devastating impact a tax lien could have on her life. Since the tax lien is a matter of public record, it is quickly picked up by title companies and credit-reporting services. Accordingly, the client’s credit status could be adversely affected until the lien is released.
The Solution:
The client had to means to pay the taxes, she simply didn't have the desire or inclination to deal with the paperwork. And this is where HomeWork Solutions was able to step in and get her back on track.
After a tearful call to HWS, the client upgraded to our Essential Payroll service to deal with the back tax situation. HWS drafted the taxes from the client's account and made electronic payments for the client. She then was convinced to further upgrade to Complete Payroll. HWS got her caught up with the taxes for the first four months of the year, and then began paying the nanny every week by direct deposit. Each week we draft the client's bank account for her nanny's pay and the associated taxes. HWS makes the quarterly tax filings and payments for the client automatically - she doesn't lift a finger.
The Outcome:
Our client was able to have the tax lien lifted several weeks later, and her life was back on the right track again. She is going about her personal and professional business today confident that she will not have a repeat of this terribly stressful experience.
Our client's nanny is equally delighted, as direct deposit nanny payroll is widely desired by nannies. She even has a portion of her weekly pay deposited in a separate savings account, building up her rainy day funds.
Win - Win
