Starting July 15 and continuing through the end of 2021, many parents will be receiving a child tax credit as part of the American Rescue Plan. The tax credit is $3,600 for children younger than age six and $3,000 for those between six and seventeen. The payments are an ‘advance’ on 2021 taxes and will arrive in monthly installments on the 15th of every month. The total credit is available for married couples with children earning a combined $150,000 or less that file jointly or $75,000 for individuals. For people making more, the money will be reduced accordingly. Most people will get the funds through direct deposit into their bank account or how you filed your 2020 taxes.
The pandemic has changed how we live, and for many families, it has been a challenging year. Some families will use this increased tax credit to bulk up their savings account, to add to their children’s college fund, or to cover costs of a family vacation. Another great idea is to hire a nanny, a tutor, or private educator to help your child in your home. Maybe your child has struggled in school this last year, and a summer nanny or tutor would benefit your child before the next school year starts. Or perhaps you have adjusted your hours at work and need an extra hand during the day to assist in caring for your child.
Hiring a qualified nanny and using your tax credit income to offset your nanny’s wages may be ideal for your family. Remember, once you hire an in-home employee, you are a household employer and have some legal responsibilities to pay your employee fair and legally. Here are some things to keep in mind.
#1: Paying your nanny ‘off the books is illegal.
Paying your employee under the table is not fair or legal. It could be considered tax evasion and could translate to hefty penalties if you were to be audited. It is essential always to pay your nanny on the record and withhold all proper taxes for them. In addition, you should know that your nanny is not an independent contractor. Independent contractors set their job duties and hours and pay their own taxes. If you control the specific days and times your caregiver works, or if you have a set of responsibilities you want them to follow, they are an employee and you owe employment taxes.
#2: Hire experts, so you’re sure all details are covered.
Ensure all required employment forms are filled out for your employee to comply with federal and state tax laws, including a W4 form, I-9 form, and payroll direct deposit information. There are many different items to get in place when it comes to hiring your employee. Are you unsure what needs to happen to get payroll and tax information set up before your new employee starts, or how to handle new hire reporting?
Our team at HomeWork Solutions can help answer your questions, so you can be sure everything is on the up-and-up before your new employee starts working in your home. Contact our team of specialists today at 1-800-626-4829 for more details.