Nanny Taxes/Household worker taxes

[MrsIMDoc]

Hello, my husband and I are beginning to look into hiring some household help.  I am just beginning to learn about the Nanny Tax.  What do most people use to do the withholding for the nanny tax?  Care.com services seemed expensive.  Is this something a CPA would help with? Or is this something that can easily be done on your own? Again, we are brand new to this so any articles or help would be appreciated.

My husband would like to pay them under the table because he does not want to be bothered with it.

[soundbyte]

We're going through the same thing currently. I would also love to get more info, but from my research, it seems a local CPA should be able to handle this if you have only 1 or 2 nannies.

[Zaphod]

Cant you also use one of the many paychex type sites? Their rates seem pretty reasonable and they handle everything IIRC. Paychex obviously one of the larger companies.

[Soskfi]

I used nannytaxtools.com. It was a great starting place. Definitely recommend it, but it was still a lot of work and googling because each state is different of course. Once you get it set up its pretty easy though.

[Hatton]

I pay social security on my housekeeper using quick pay which is the same software that I use to calculate it for my office employees

[jfoxcpacfp]

MrsIMDoc wrote:

Hello, my husband and I are beginning to look into hiring some household help.  I am just beginning to learn about the Nanny Tax.  What do most people use to do the withholding for the nanny tax?  Care.com services seemed expensive.  Is this something a CPA would help with? Or is this something that can easily be done on your own? Again, we are brand new to this so any articles or help would be appreciated.

My husband would like to pay them under the table because he does not want to be bothered with it.

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Yes, a CPA can handle this easily. Get a quote and compare the cost to the cost of using other DIY sites and the extra hassle of dealing with it yourself.

As to your DH's desire, here are a couple of thoughts -

• By your screen name, I presume you are obviously HIPs (high-income professionals), at greater risk of audit. The IRS would expect to find cash payments to a nanny (and, probably a housekeeper) after your initial interview.


• If your nanny leaves on bad terms, (s)he could report you to the IRS.


• If your nanny is injured on the job, you could be reported for workmen's comp and your state SUI department may share info with the state income tax department and/or the IRS (or state income tax dept will almost certainly share information with the IRS).

Just not worth it. Do it right and you'll sleep better at night.

[SC_Doc_Couple]

We have used Intuit Payroll for about two years to help pay our nanny.

It's simplifies a lot of things.

Pros:

• It generates a paystub.


• It automatically calculates all your taxes (and withholding, if you nanny wants it).


• It sends reminders when taxes are due.


• It already does state-specific tax calculations (including unemployment, income, etc).

A few downsides:

• It's ~$25/mo, so not cheap by any means.


• It presumes you have an actual business, so the reminder for federal taxes is wrong.  It tells you to submit forms 941/944, which are incorrect unless you have a business besides employing a nanny.  Usually, you need to submit estimated taxes quarterly instead.

I'd like to hear other people's thoughts if they know of a better system.

[wideopenspaces]

At what point do you have to pay these taxes? Should I technically be paying this to my 12 yo niece who babysits once a month? What if I have a regular babysitter 10 hours a week? Or is it only an issue with someone who is working full time for you?

[DMFA]

wideopenspaces wrote:

At what point do you have to pay these taxes? Should I technically be paying this to my 12 yo niece who babysits once a month? What if I have a regular babysitter 10 hours a week? Or is it only an issue with someone who is working full time for you?

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Your answers seem to be here: https://www.irs.gov/publications/p926/ar02.html

If they get less than $2000 per year from you, are your spouse, child < 21, or parent, or are under 18 and not primarily employed as such (e.g. a student), then you don't have to pay tax.

"An employee who is under the age of 18 at any time during the year. Exception: Count these wages if providing household services is the employee's principal occupation. If the employee is a student, providing household services isn't considered to be his or her principal occupation."

If you pay them over $2000 a year and they are over 18, you seem to be on the hook for taxes.

[Hatton]

If you get audited the IRS will assume you are paying someone for child care and someone to clean your house. It is just the way it is.  My office housekeeper also cleans my house.  I issue her 2 different checks and do the proper withholding.  It is just insurance in case you get audited.

[jfoxcpacfp]

wideopenspaces wrote:

At what point do you have to pay these taxes? Should I technically be paying this to my 12 yo niece who babysits once a month? What if I have a regular babysitter 10 hours a week? Or is it only an issue with someone who is working full time for you?

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• If you pay $2,000+ in a year, you or the employee will owe FICA taxes + FUTA (Federal Unemployment Taxes), and you are responsible for remitting.


• In addition, if you pay $1,000+ in any quarter, you are responsible for FUTA (6% of the 1st $7,000 per year), even if you do not pay $2,000+ in a single year.


• Whether you owe SUTA (State UTA) depends upon the regs. in your state.

You will report household employee pay and taxes annually on schedule H attached to your form 1040 and will file a 940 for FUTA. Many employers "gross up" the total wages paid, pay both employer and employee share with the 1040 and work out the tax arrangement with the employee in the beginning. The employee will get a W2, of course.

It is not an issue only if someone is working full-time. I doubt you pay your niece enough to report but the 10-hr/wk babysitter probably makes over the above thresholds.

[wideopenspaces]

Thanks to everyone for the clarification! I'm having a baby in October but we won't start using a nanny until he's 6 months. And even then it will just be part time. But it looks like we'll meet that 2k threshold so we better figure this one out . . . Appreciate all the advice and sharing by PP's as to how they've made this work.

[mrwgls]

We're >1 year out from last activity on this thread, so I won't hold my breath for a reply but OP's question touches on a current situation in my own life. My wife (resident) and I are hiring a nanny jointly with another couple, one of who is also a physician. We want to do things "by the book" and complying with whatever mess of taxes is required. The other couple wants to go under the table. We are attempting to persuade them on the basis of (1) it's the right thing to do (2) IRS trouble if caught and (3) possible loss of medical license if convicted of tax fraud (or something equally serious). Their "response" to item (3) is basically that, because they are filing taxes separately and having the non-physician spouse pay the nanny, only that spouse could be charged with fraud and, therefore, the medical license is not at risk.

I have been trying to find evidence that this is not correct, but may not be looking in the right places. Maybe someone on here has heard of something similar happening?

[jfoxcpacfp]

Their “response” to item (3) is basically that, because they are filing taxes separately and having the non-physician spouse pay the nanny, only that spouse could be charged with fraud and, therefore, the medical license is not at risk.

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They are wrong unless they are filing their income tax returns MFS. By signing a joint tax return, each spouse is attesting to the veracity of the information included in the return. And the IRS has constructed the reporting of household help in such a way that it is reported 100% on your 1040, not the typical payroll tax reporting that separates personal taxes from payroll taxes.

They are stretching at silly excuses. Another huge reason is that the nanny could have an accident on the job and "realize" that s/he could have qualified for worker's comp. Or be let go by you and "find out" that s/he could qualify for unemployment pay and report you.

Do not go down this road for a few extra bucks. It is not worth it, at least in my book. And, honestly, would you want to saddle up with a couple with compromised morals? When the horse stumbles, you'll both be thrown into the ditch.

[jfoxcpacfp]

(duplicate response deleted)