10 Essential Tax Lessons Every Nanny Needs to Know

Every year in January, I field a lot of tax questions from nannies. Even though the caregivers change from year to year, the questions pretty much stay the same. So I’ve put together this list of the 10 tax lessons that I think every nanny should know. By learning these lessons now, in the beginning of the new tax year, you can save yourself a lot of headaches next year when it comes time to file your taxes.

 

1. Don’t assume your employers are paying you legally even if you talked about taxes during the interview stage. Too many nannies come to the end of the year only to find out their employers thought about paying taxes but never got around to it.

2. Don’t assume that your employers are withholding federal or state income taxes. They are only required to withhold your portion of Social Security and Medicare. They’re not required to withhold income tax although some do voluntarily. If they’re not withholding those taxes, plan on paying estimated quarterly taxes to avoid a huge bill at the end of the year.

3. If your employers aren’t withholding taxes from each paycheck, they can’t suddenly decide they need to catch up and take out all the owed taxes at once. They also can’t pay the taxes and then require you to pay them back. Because they didn’t withhold taxes in a timely way, they’re responsible for paying their portion AND your portion of the Social Security and Medicare tax. You’re still responsible for paying federal and state income taxes on those wages.

4. Outline the details of your “tax agreement” in your nanny contract. Include what taxes your employers are responsible for withholding and their commitment to provide you with a regular pay stub. (The A to Z Nanny Contract makes doing this easy peasy.)

5. Require a pay stub for each pay period. Check your year-to-date earnings and withholding to make sure you’re being paid the correct amount of regular and overtime wages and that the correct type and amount of taxes are being withheld.

6. In the upcoming year, if you earn less than $1,900 your employers don’t have to report your wages, withhold taxes, or give you a W-2. But you still have to report those wages and pay federal and state taxes on them. This article goes into this in detail.

7. Even if your employers pay you less than $1,900 and don’t have to report your income, they still might in order to claim a tax credit. If they report it, you’re on the hook for federal and state income taxes on that amount.

8. You’re a household employee, not an independent contractor, and your employer must provide you with a W-2 at the end of the year, not a 1099. Even if their accountant says a 1099 is fine, it’s not. And yes, I’m sure.

9. Your employers have until January 31st to provide you with your W-2. If you don’t receive it by mid-February, you can contact the IRS and move forward without it. (Check out this article for details.)

10. If your employers aren’t paying taxes on your wages there’s not a way to do it yourself that doesn’t put them at risk for audit. You can report your wages without a W-2 but the IRS will want to know where those wages came from. You can report your wages as an independent contractor but since you’re an employee, not an independent contractor, your employer could get dinged for misclassification. Plus you’ll have to pay twice as much Social Security and Medicare tax as you truly owe. There simply isn’t a way to handle taxes on your own without putting your employers at risk for an audit.

If you’re not being paid legally but would like to be, I’ve created a free resource page to help you have that tough conversation with your employers.

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