According to a report released by the National Taxpayer Advocate Nina E. Olson, the number of tax returns the Internal Revenue Service decided needed additional screening for possible fraud and/or identity theft in 2011 exceeded 1 million, a 72 percent increase over 2010. The office of Taxpayer Advocate is established as an independent watchdog within the IRS and it reports annually on the agency's performance.

In an incredibly interesting and complicated court case involving:

The Form 1040 Schedule H is the vehicle that household employers use to report wages paid and employment taxes due for household workers. This form is a bit more complex for 2011 due to 2 significant events.

A quality nanny placement and referral agency can be a life saver for families hiring a nanny, especially for first time employers and families with newborns. The plethora of on-line options almost leaves more questions for families than they answer. Families wonder:

Do you have a regular person who comes to your home to provide housekeeping, maid or cleaning services? Do you know that this individual is probably your employee under common law and the Internal Revenue Code?

The US Department of State has issued non-immigrant visas to the personal attendants, servants, and maids of certain diplomatic and non-governmental staff members under G-5, A-3 and NATO-7 visa categories for many years. Guidelines for the sponsoring staff members were very broad, and subject to interpretation by the various sponsoring organizations.

IRS data places "nanny tax" compliance (declaration by families of their household payroll) at about 20%. Household employment experts believe even this number is optimistic.  Looking at these statistics, a new household employer has to think that just ignoring this complicated and expensive issue is relatively risk free. What these numbers don't illustrate is the steadily increasing political pressure on the IRS to collect revenue, and the relatively low hanging fruit the "nanny taxes" present. Add to this the very real possibility that the elder care giver or nanny may file for unemployment benefits when the job ends, and the risk evaluation changes dramatically.

If you employ a nanny, chances are strong at some point you will need to let the nanny go. There are myriad reasons a family fires a nanny. The children grow up and your beloved family nanny is no longer needed. Perhaps the nanny has horrible work habits - always late or a frequent 'no show.' Your family and the nanny simply may not 'click.' The nanny who was a wonderful nurturer of your infant does not have the energy to deal with your demanding toddler. Whatever the reason, firing a nanny can be an uncomfortable experience for both family and nanny.

Below are some tips and best practices when letting the nanny go.

Are you ready to compute your 2012 payroll?

The 4nannytaxes.com household payroll calculator has been updated with new withholding tax rates for 2012. Clients who write their own paychecks, please confirm your withholding calculations before issuing any 2012 payroll as there are many income tax rate changes!