You hear about it every election year, some woman is running for office and she gets outed for not paying her “nanny tax.” (I’m sure that there are men guilty of this crime as well, but it seems that women candidates are the ones who get caught.) If you have household employees, such as a nanny, private nurse, cleaning person, health aide or private gardener, you may be subject to paying their payroll taxes.
How do I know I have an employee? Good question – that’s how people get in trouble. Here’s an example: I hire Ernie the lawn guy. He uses his own equipment. He usually comes on Thursdays, but last week he thought my grass wasn’t long enough so he didn’t cut it. Ernie basically has control over what he does. Ernie has his own lawn care company – he’s self employed. On the other hand, I hired Dawn to help take care of my mom. Dawn only worked a few hours a week, but Dawn was supposed to come at a certain time, leave at a certain time, we purchased any supplies she needed, and she basically did what she was instructed to do. Dawn was really a household employee.
If you hire someone to care for your children in your home – that’s pretty much a household employee because you’re going to have some very specific rules about how your children are cared for. On the other hand, if you take your children to someone else’s home for child care, even though you may have very specific rules about how your child is cared for, it’s still not a household employee because your child is being cared for outside of the home. Is this getting any easier? I know it’s kind of fuzzy but that’s pretty much how it goes.
If you have a household employee, you need to have them do employee paperwork: They need to fill out an I-9 form. Here’s the link to that: http://www.uscis.gov/files/form/i-9.pdf. The page that needs to be filled out is on page 4. For most people, you’re going to want to check their driver’s license and social security card to make sure they are allowed to work in the US. Page 5 gives you lists of other acceptable documents should you need them.
The other document that you’re going to want your employee to complete is a W4 if you’ll be withholding income tax. http://www.irs.gov/pub/irs-pdf/fw4.pdf Most household employers do not withhold state or federal income tax but some do. You will be withholding social security and medicare taxes from every paycheck though.
So now that you’ve determined that you’ve got a household employee and you’re withholding social security and medicare taxes, how do you pay them? Household employee withholding is a little easier than if you own a business and have to pay withholding taxes. You’re actually going to pay the taxes with your own personal 1040 return on a form called Schedule H. http://www.irs.gov/pub/irs-pdf/f1040sh.pdf
Before you panic about having to do withholding and stuff, make sure that you’ve paid enough to be required to do withholding. If you pay any one employee wages of $1700 or more, then do the Schedule H. If you withheld federal income tax, that will be included on the Schedule H as well. Also, if you pay total cash wages of $1000 or more in any calendar quarter, then you’ll also have to do a schedule H. For example: you hired two workers around Christmas and paid them each $600 – then you’ve got to do the Schedule H, even though you haven’t paid either of them over the $1700 limit. There are some exceptions for people under 18, hiring your kids, or hiring your parents. If you think you have an exception to paying the nanny tax, or want more information, you can read more about it in IRS publication 926. http://www.irs.gov/pub/irs-pdf/p926.pdf
You will need to supply your household employee with a W2, and the appropriate copies will need to be sent to the Social Security Administration. You can get free forms from the IRS. You have a deadline of January 31st for getting the W2 to your employee and February 29th for the Social Security Administration. You must use the real form – it’s red. You can’t download it off the internet. Here are W2 filing instructions from the Social Security Administration: http://www.socialsecurity.gov/employer/index.htm
Now here’s the big commercial plug—doing all these forms can be a real pain in the behind for a normal person. For a tax geek like me, it’s kind of fun. (I guess that means I’m not normal?) But at Roberg Tax Solutions we can get all of your household employee tax paperwork taken care of and done right, so you don’t have to worry about it.
Hi Linda,
I’m a little confused–are you the care giver to your mother? That’s how I’m reading it, that “your payment” is the payment you receive for taking care of her. So if I’ve interpreted that wrong, I apologize. My response is assuming that you are the caregiver.
This is totally screwed up. Just sayin’, although I’m thinking you already know that.
And no–there’s no deduction for paying that tax that I can think of. Here’s why–if the VA is refusing to pay the employer taxes, that means they are treating you as contract labor–making your income 1099 income and not W2 income. If you employer share of tax is $3134 then I’m thinking you’re doing this as a full time job and you’re not doing home health care for anybody else–which makes you an employee. (I could go on forever about that, but I’ll spare you.)
But–you’re being treated as contract labor–because employers pay the payroll tax. As contract labor–you pay your own employer share of the tax–no deductions.
Now, with your situation, it sounds like your CPA set everything up for you to be paid by your mother. I’m guessing she does the taxes for both of you. And it sounded like a really smart idea until the VA decided not to pay the employer share of taxes. (And that might be because you already maxed the amount of money they’re willing to pay for the home health care–that’s only a guess but they do have limits on what they’ll pay.)
So it see it as two options:
1. pay the employer share yourself–remember you may always be stuck paying it, and file your mom’s taxes with you as her employee and file the 941s and all that the way you were planning. In the future you can gross down your pay. Your CPA can figure this for you. Basically, take the money that the VA is willing to pay for the home health care–figure it to include the employer share of taxes, and pay the employer share every time you pay the withholding. There are two advantages to this. A. you don’t get stuck with a big, non-deductible payment later and B. you’re individual income is lower so you pay less tax on the back end. Your CPA may even be able to back track into this before the next quarterly is due.
or, 2. Don’t pay the 941 taxes, get a refund for the one’s you’ve already paid, and put the income you receive from the VA as self employment and pay all the tax then. Then write off all of your self employed business expenses–like mileage, your home office, gifts for your patient, supplies, etc.
Now, you can’t claim mileage back and forth to your mother’s unless you have a home office, so you’ll need the home office to handle your administrative duties–like paying the taxes, etc. And if you live right next door or something, mileage might not be a good deduction. But if the VA is treating you as contract labor–then take advantage of ALL of the contract labor deductions before paying those payroll taxes.
Good luck.
My mom received the VA Aid and Assistance payment monthly. I have worked with a CPA to setup the SS and medicare payments (and Sch H, FUTA and SCDEW Taxes) that are removed from my payment monthly and paid quarterly. The problem is that the VA has not approved the payment of Employer SS and Medicare payments from her VA account. That means I am going to pay them from my account (her daughter). Am I able to deduct this one time payment ($3134 to the IRS) from my income since this is to pay employer taxes for myself that my mom cannot pay? Are there any forms that I need to fill out?