How to Prepare for the Nanny Tax

March 14, 2014 News, Uncategorized

(by Kathy Kristof, Money Watch)

If you employ a nanny or even a summer-time caregiver for your kids, prepare yourself for some bad tax news. Assuming you pay that person more than $1,900 annually (or more than $1,000 in a calendar quarter) and the caregiver is an adult working in your home, you are a household employer. And that opens you up for a world of hurt.

“It’s a small example of what a commercial employer must do,” says Stephanie Breedlove, vice president of HomePay. “To comply with the law, you have to withhold payroll taxes, remit them to the IRS and report wages to the state and the federal government on different quarterly schedules.”

You may also need to calculate and pay unemployment taxes and worker’s compensation levies to either the state or federal government, or both.

What do you have to do, if you want to do it yourself? It’s best to take it step-by-step:

  1. Set up an account with both your state and the IRS.
  2. Determine whether to deduct payroll taxes from your worker’s weekly wags.
  3. Put tax and reporting deadlines on your calendar and be certain to meet them.
  4. Provide your worker with a W-2 form at year-end, showing how much she earned and the taxes that have been withheld during the year.
  5. Claim tax deductions for your child care expenses.

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