Tag: schedule H

Posted on by Jan Roberg

Nanny Tax: What to Do About Your Household Employees

Nanny phoro

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.

Posted on by Jan Roberg

Hiring Grandma to be a Nanny

Hiring grandparents.

Usually you must withhold Social Security and Medicare taxes for household employees. But if you hire your parent to watch your kids, they may be exempt.

 

 

I was recently asked, “How do I go about hiring my Mom to be a nanny?”  Unlike me, who would just try to pawn my kids off on my Mom whenever I got the chance, this person wanted to make it official: 1. She wanted to pay her mother for the work, and 2. She wanted to make sure all the tax stuff was handled properly.  If you’re thinking about hiring your Mom (or your Dad) here’s what you should know.

First, when you hire your parent for domestic work (including child care, housekeeping, etc.) your parent is exempt from social security and medicare withholding.  This makes the whole “hiring your parent” thing a lot easier.  There is an exception though, and I think a lot of families might fall into this category:

If you meet both of these conditions:  1. Your parent cares for your child who is under 18 or is disabled and 2. You are either divorced or widowed and not remarried, or your spouse is permanently disabled.  Note:  the rules don’t say anything about if you were never married, just divorced or widowed.  So, if you meet these conditions, then you do pay the payroll taxes.  Otherwise, just pay your mom every week.  She can report the income on her tax return and you can report that you paid her and claim the child care credit. Super easy, right?

If you do have to do the payroll withholding, it’s not that hard.  For 2011, you’ll want to withhold 5.65% to cover the employee’s share of payroll taxes.  You’ll wind up matching that amount when you file the Schedule H with your tax return (the household employee tax.)  You have the option of paying your Mom’s share of the employee tax and not withholding it from her pay. (You just don’t withhold and you pay double the employer’s tax, still pretty easy.)

You do not pay FUTA (federal unemployment taxes) on your parent no matter what the circumstance.

You may be required to pay state unemployment insurance, you’ll have to check with your state.  Here in Missouri, you’ll pay unemployment insurance if you pay your parent over $1,000 per quarter.

You will need to provide your parent with a W2 after the year is over showing the income paid, whether you withhold the payroll taxes or not.

For more information of household employees, check out IRS publication 926.

To check out the Schedule H, click on this link:    Schedule H.

Addendum:  shortly after I posted this blog, I read an article about nanny’s that get paid over $150,000 a year.  If you pay your nanny over $106,800, then you don’t need to withhold the social security tax on any amount over that.  (You still withhold the medicare.)  If you do pay your nanny that amount, I’d just like to point out that not only am I really good with children, but I can also prepare my own payroll and do all the associated tax forms that go with it.  (Just saying.)