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  • spiritrider
    replied
    It is not that a nanny or other person providing services to a homeowner can not be an independent contractor. They most certainly can if they are truly independent with multiple clients, E.g. housecleaning services.

    For example, your landscaper, someone who plows your driveway, paints your house or any number of trades and businesses who have multiple clients, provide their own tools, etc... all of what makes them a business. Even the day care center providing similar services to a nanny is a business.

    However, a nanny who only provides these services for you, comes to your house, using all of your resources, is most definitely an employee. This is no different than a homeowner with large property needs and hires someone; who only does the landscaping, snow removal, painting  and other maintenance for your property with your resources. That person is most definitely a household employee.

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  • Craigy
    replied




    That’s my understand on all points.

    I have no interest in trying to get out of paying this legally, mostly just curious as to the underpinnings.

    It is odd to me that the liability seems all to fall on the employer side of the ledger esp in what is basically just a transaction between 2 people.
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    The reason the liability falls on the employer side is because the employer is typically the only one with the ability to pay.  Squeezing a turnip, and all of that.

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  • MPMD
    replied
    That's my understand on all points.

    I have no interest in trying to get out of paying this legally, mostly just curious as to the underpinnings.

    It is odd to me that the liability seems all to fall on the employer side of the ledger esp in what is basically just a transaction between 2 people.

    Leave a comment:


  • Craigy
    replied




    Thanks for replies.

    I see the truth in this I just still don’t quite get it from the standpoint of the IRS. They seem to be saying that a household worker is not allowed to be an independent contractor. Do we think that this is just b/c basically none of them would file? I haven’t been asking to see their tax returns obviously but also anecdotally it seems that most of the people we are interviewing are not filing any taxes and haven’t in years. I wonder what would happen to them the first time they do actually file? Couldn’t that trigger an audit that could just absolutely devastate them? Seems like IRS would get back statements and flag everything coming into their bank account as income? Maybe they all just lead cash lives though.

    Yeah we are definitely passing on someone we really liked b/c she was non-negotiable on getting paid cash. From polls of our friends paying cash actually seems to be the most common thing in Chicago. Unclear if they are taking a carefully calculated risk or just don’t know any better. I guess if you just took out a bunch of cash every month and paid them that way (as opposed to with checks) the IRS could never prove that you had a nanny?

    Lots of interesting stuff here for sure.
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    No, they would not.  Hate to break it to you :lol: but people generally don't pay taxes on cash.  Yeah, it's illegal.

    When you tip your hairdresser, waiter, cab driver, pizza delivery guy, that's just cash in their pocket.  When you give your lawn guy a few twenty dollar bills, that just goes in his pocket.  You think they report that on their 1040EZ?  ************************ no.

    Many people actually literally believe you don't have to pay taxes on cash, like that's the law.  Remember, we're not always dealing with the most sophisticated folks here.  But most of them simply don't want to pay tax, and they know they can get away with it.

    Fact is, unless the IRS is getting some form of reporting (1099, W2, etc), they have no clue.  And until you start filing returns, you're completely off their radar.  The IRS doesn't get a copy of your bank statements unless they go out of their way to request them.  And even if someone was making cash deposits, it would be up to the IRS to prove these were taxable wages and not gifts from Aunt Gertrude.  And then, we're talking about squeezing a turnip here, very unprofitable way for an auditor to spend his or her time.

    It's the same reason that employers are forced to withhold for you, and report your income to the IRS.  If they didn't, tons of employees would simply forget to pay their taxes, or, by the time the tax bill hits, wouldn't have any money left to pay it.

    Yeah, you're taking a risk paying someone cash.  The easiest way they could prove it is if the cash employee ever tattled on you.  In theory they don't want to report that they've been dodging taxes themselves, but when all their friends are getting their refund checks, they wonder why you haven't been paying their taxes for them.

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  • MPMD
    replied
    Thanks for replies.

    I see the truth in this I just still don't quite get it from the standpoint of the IRS. They seem to be saying that a household worker is not allowed to be an independent contractor. Do we think that this is just b/c basically none of them would file? I haven't been asking to see their tax returns obviously but also anecdotally it seems that most of the people we are interviewing are not filing any taxes and haven't in years. I wonder what would happen to them the first time they do actually file? Couldn't that trigger an audit that could just absolutely devastate them? Seems like IRS would get back statements and flag everything coming into their bank account as income? Maybe they all just lead cash lives though.

    Yeah we are definitely passing on someone we really liked b/c she was non-negotiable on getting paid cash. From polls of our friends paying cash actually seems to be the most common thing in Chicago. Unclear if they are taking a carefully calculated risk or just don't know any better. I guess if you just took out a bunch of cash every month and paid them that way (as opposed to with checks) the IRS could never prove that you had a nanny?

    Lots of interesting stuff here for sure.

    Leave a comment:


  • Anesthesia84
    replied
    Yep, we looked and looked to try to find a way to get around it.... the IRS is very clear. W-2 only for a nanny unfortunately. The way we had to do it was to keep her take home pay the same as if she was being paid cash, which just meant that our financial outlay was more each month. Now we've switched to an au pair - much more affordable!

    Leave a comment:


  • spiritrider
    replied
    P.S. The relevant document is Publication 926 Household Employer's Tax Guide

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  • spiritrider
    replied
    Golfing Doc is right. The IRS is very clear.. If you exceed the limits, you must pay nannies and any other household help as W-2 employees. There is no wiggle room for paying on a 1099. There is an IRS Publication that covers this.

    This requires withholding FICA and income taxes from their pay. You will also have to pay federal Unemployment Insurance (UI), state (UI) and in many states Worker's Compensation Insurance. Of course in CA, there are other payroll taxes. Whether you have to pay overtime is subject to state law.

    Note: To answer another question. You can have an owner-only retirement plan as long as you don't use the same EIN as your business to pay them. They are not an employee of your business and employees or not, your household is not a business subject to controlled and affiliated service group rules.

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  • Golfing Doc
    replied
    I believe household employees must be issued a w-2 and not a 1099. Either way, paying under the table is definitely illegal

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  • VagabondMD
    replied




    Sorry to resurrect old thread but seems to touch on my issue.

    Is there any way (e.g. by declaring your nanny a 1099 employee) to pay them cash?

    I would prefer to be “on the books” but we found someone great who won’t work except for cash.

    I really don’t quite get why the IRS cares. If I am paying someone a fair market rate in chunks of cash it’s up to them to file and pay taxes. Why/how is this different from when I moonlight and get paid as an ICC and then get a 1099?
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    If you provide a 1099, it does not matter whether you paid in cash, gold bullion, bitcoin, or goats (FMV). But likely, your prospective nanny wants cash to avoid paying taxes, and while this is commonplace, it is illegal. We passed on several excellent prospects because of this issue.

    Leave a comment:


  • Miss Bonnie MD
    replied




    Sorry to resurrect old thread but seems to touch on my issue.

    Is there any way (e.g. by declaring your nanny a 1099 employee) to pay them cash?

    I would prefer to be “on the books” but we found someone great who won’t work except for cash.

    I really don’t quite get why the IRS cares. If I am paying someone a fair market rate in chunks of cash it’s up to them to file and pay taxes. Why/how is this different from when I moonlight and get paid as an ICC and then get a 1099?
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    HUGE liability. It's illegal for one and if you're in the PMG group tons of nannies have taken their employers to court. Not sure any doc would risk this liability....

    Leave a comment:


  • MPMD
    replied
    Sorry to resurrect old thread but seems to touch on my issue.

    Is there any way (e.g. by declaring your nanny a 1099 employee) to pay them cash?

    I would prefer to be "on the books" but we found someone great who won't work except for cash.

    I really don't quite get why the IRS cares. If I am paying someone a fair market rate in chunks of cash it's up to them to file and pay taxes. Why/how is this different from when I moonlight and get paid as an ICC and then get a 1099?

    Leave a comment:


  • jfoxcpacfp
    replied




    Thanks Johanna.  Any reference on individual states?  I live in NC.  Will start searching their website.

    Also, it seems for federal, all that is required in the FICA (15.3% for counting employer and employee components).  What about income tax.  Assume that places the reporting requirement and income tax payment on the employee?

    Thanks!
    Click to expand...


    Google "household worker taxes in NC". I got several hits on good articles but d/n/h time to read further.

    Leave a comment:


  • squirrel
    replied
    Thanks Johanna.  Any reference on individual states?  I live in NC.  Will start searching their website.

    Also, it seems for federal, all that is required in the FICA (15.3% for counting employer and employee components).  What about income tax.  Assume that places the reporting requirement and income tax payment on the employee?

    Thanks!

    Leave a comment:


  • DMFA
    replied
    What you pay your nanny has to be taxed somehow.  Whether you cover it yourself with her as your employee (W-2) or pass it onto them as a contractor (1099) is up to you.

    Be aware that you are able to reimburse yourself from a dependent-care FSA and can use the child/dependent care tax credit [link] (up to 20% of expenses, $3000/child or $6000/family) for anything that wasn't reimbursed, except in certain circumstances.

    If you're incorporated and she's an employee of your corporation, and if your corporation does a 401k...my question is, does that open a can of worms vis-a-vis non-discrimination and top-heaviness of the 401k plan? [IRS pub 560] [IRM 4.72.5]  Or am I over-thinking this?

    Johanna's article linked above is a good explanation for what should capture most people in this situation (like I may be soon).

    Leave a comment:

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