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February 25, 2013

Handling Nanny Taxes Right – At the Right Time

I want you to meet Stephanie Breedlove, of Breedlove, vice president of Care.com Homepay. Stephanie and her husband founded this household employment payroll & tax company out of a personal need (wanted to pay nanny taxes) and honestly, I have never met a more engaging tax professional! Here, she shares a real "nanny tax" story every family needs to hear.

Blog-nanny-taxesDuring this time of the year, my team hears from many families who have put off key aspects of the household employment process. After being consumed with finding and vetting the ideal nanny, they begin paying her each payday – not realizing there’s more to be done.

We just handled a situation like this for a family in Minnesota. They hired a nanny to care for their two young children last January. Exhausted from a prolonged search and feeling the need to quickly re-focus on their careers, the family hastily got their nanny situated with the kids and went back to work.

The family paid the nanny an agreed-upon wage of $15 an hour for 38 hours per week ($570). They did not withhold any taxes from the nanny's pay or pay any employer taxes. Fast forward to just a few weeks ago, they sat down with their accountant and had to tell him they had paid $29,000 in wages to their nanny during the 2012 tax year.

As you might imagine, this meeting didn’t go very well. The family’s accountant informed them that they had failed to withhold and pay the proper household employment taxes

So he sent the family to my team at Breedlove and we were happy to establish tax IDs for the family, file the overdue quarterly employment tax returns, prepare and distribute a Form W-2 to the nanny, file Form W-2 Copy A with the Social Security Administration and prepare a Schedule H for the family to use with their joint tax return.  Sounds like a lot of work, but we do it all the time!

The point of this story is to alert families that there are some employer obligations.  And, while we can certainly help families play catch-up on their nanny taxes, it’s cheaper and easier to handle them properly at the time of hire.

I realize that nanny taxes are complicated.  As a new mother trying to pay my first household employee "on the books" more than two decades ago, my husband and I learned that the hard way. That’s why we founded our specialty tax agency – to eliminate the work and worry for busy families so they can spend more time with their loved ones.  We’ll be happy to assist your family too. Please take advantage of the free nanny tax resources at www.breedlove.com or give us a call. We’re here to help!


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Comments

Jeanne & Alexandra

Thank you. You may have just saved us an enormous headache. We are discussing a first-ever nanny arrangement and the Nanny candidate specifically requested she be treated as a "contractor" and that she would file her own taxes with a 1099. I was actually searching for how to get a 1099 issued when I came to this article. Much appreciated!

Mr. Grace

Why dont the nanny just be considered a self-employed contractor?

Stephanie Breedlove

Thank you Jeanee & Alexandra for your kind words. I'm very happy the article helped you out!

Mr. Grace, a nanny cannot be considered a self-employed contractor because they do not control the working relationship when it comes to the hours they work and how the work is done. These and other details are controlled by the family. In fact, the IRS in Publication 926 specifically includes nannies in their definition of a household employee along with caregivers, personal assistants and housekeepers.

Darla Rodriguez

Hi. What if I have a neighbor get my kids on and off the bus for about 2 hrs per day:10 hrs a week? Is there a tax obligation for this? This is a neighborhood mom with kids in the same school

Stephanie Breedlove

Hi Darla,

Based on your question, there seems to be no money being exchanged for your neighbor watching your kids, so there would be no tax liability on your part. It sounds more like a kind gesture on the part of your neighbor. If that is not the case, feel free to call our office and we'll be happy to determine if the arrangement is an employment agreement.

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