Monday Mailbag: Nanny Taxes
Q. Can you please clear up a question for us? We are working with a couple of nanny agencies to find a nanny, and one agency owner told us that we are not required to pay taxes for our nanny. The agency insisted that her nannies like to be paid in cash, and that taxes weren't necessary. We found this a little strange, and asked about tax witholdings with the second agency. That agency told us that taxes are required to be withheld just like any other job. Is this true? Are we responsible to pay nanny taxes?
A. If someone tells you that you are not required to pay taxes for your nanny, don't listen to them. To answer your question, yes, you are an employer and required to pay all withholdings for your nanny. The same applies for anyone who employs other domestic help. Contrary to popular belief, nannies and domestic employees (those that work in private homes) are not independent contractors, but employees, just like any other job.
To explain it better, consider your current job and place of residence, any loans and/or lines of credit you may have. That information was given to to the landlord and banks for income verification. Had the income not been verified, you wouldn't have been extended the lines of credit. Income verification would've been difficult.
Think about the fact that you may get injured at work. You would file workman's compensation. The company you work for could phase out your job, which means unemployment compensation. During my entire career, I have filed unemployment once and had to submit previous paycheck stubs for wage verification. If I didn't have taxes taken out of my paycheck, I wouldn't have been able to obtain unemployment.
The same applies for nannies and domestic employees. Should an injury or job loss occur, filing the appropriate paperwork without taxes being withheld would be difficult. Furthermore, the IRS requires that household employees who earn $2,000 or more in a calendar year. (Source: Care,com Nanny Tax 101) Not paying your employee legally, commonly known as " 'under the table' " can result in an audit from the IRS, along with possible tax evasion charges, back taxes and penalties, and more. (Source: care.com Nanny Tax 101)
Bottom line: even though it may be time consuming and cost additional money, consider hiring a payroll service such as MyHomePay. MHP is formerly known as Breedlove and Associates, an accounting service that specializes in nanny and household employee taxes. Paying a nanny or household employee legally is less costly than dealing with the IRS and possible consequences.
Miss Dani is a career educator with both classroom and nanny experience, and the owner of Creative Nanny Solutions. Got a question for readers? Email: creativenannysolutions9@gmail.com
A. If someone tells you that you are not required to pay taxes for your nanny, don't listen to them. To answer your question, yes, you are an employer and required to pay all withholdings for your nanny. The same applies for anyone who employs other domestic help. Contrary to popular belief, nannies and domestic employees (those that work in private homes) are not independent contractors, but employees, just like any other job.
To explain it better, consider your current job and place of residence, any loans and/or lines of credit you may have. That information was given to to the landlord and banks for income verification. Had the income not been verified, you wouldn't have been extended the lines of credit. Income verification would've been difficult.
Think about the fact that you may get injured at work. You would file workman's compensation. The company you work for could phase out your job, which means unemployment compensation. During my entire career, I have filed unemployment once and had to submit previous paycheck stubs for wage verification. If I didn't have taxes taken out of my paycheck, I wouldn't have been able to obtain unemployment.
The same applies for nannies and domestic employees. Should an injury or job loss occur, filing the appropriate paperwork without taxes being withheld would be difficult. Furthermore, the IRS requires that household employees who earn $2,000 or more in a calendar year. (Source: Care,com Nanny Tax 101) Not paying your employee legally, commonly known as " 'under the table' " can result in an audit from the IRS, along with possible tax evasion charges, back taxes and penalties, and more. (Source: care.com Nanny Tax 101)
Bottom line: even though it may be time consuming and cost additional money, consider hiring a payroll service such as MyHomePay. MHP is formerly known as Breedlove and Associates, an accounting service that specializes in nanny and household employee taxes. Paying a nanny or household employee legally is less costly than dealing with the IRS and possible consequences.
Miss Dani is a career educator with both classroom and nanny experience, and the owner of Creative Nanny Solutions. Got a question for readers? Email: creativenannysolutions9@gmail.com
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