This time of year always brings up lots of questions around nanny taxes. Here are the answers.
Q. Is my employer supposed to be paying taxes on my wages?
A. The simple answer is yes. Nannies, full-time or part-time, live-in or live-out, are considered household employees and your employer is legally required to pay employment taxes on the amount he pays you and withhold your portion of Social Security and Medicare taxes from your wages (5.65% for 2011). So for every $100 you earn, your employer must withhold (deduct from the amount he gives you) $5.65 for Social Security and Medicare. He may also withhold state and federal taxes.
Q. How do I know if my employer is paying taxes?
A. If your employer is withholding taxes, he almost always will give you a pay stub or print out with your paycheck that outlines how much you earned and how much he deducted. If you don’t get regular pay stubs, chances are your employer isn’t paying taxes.
Q. My employer gave me a 1099. What is that and what does it mean?
A. A 1099 is the end-of-year earning statement for independent contractors. However, the IRS has clearly said that nannies ARE NOT independent contractors, they are employees. So if your employer has given you a 1099, he has misclassified you. This is a situation he needs to fix and should talk to a nanny tax specialist for the details. (I’ve listed my favorites at the end of this article.) They will be able to help him file the correct paperwork and get on the right track.
This is an important difference for nannies to understand. Classifying a nanny as an independent contractor rather an employee saves the parent money but costs the nanny money and takes away much needed labor protections. Independent contractors are responsible for self-employment taxes (more than double what an employee would pay) and aren’t entitled to employee benefits like unemployment and worker’s compensation. That’s why the IRS has taken such a strong stand on the issue.
Q. My employer is supposed to be paying taxes but I don’t think he is. I still want to pay my portion. What can I do?
A. Before you do anything, talk to your employer. There’s a lot of misinformation about nanny taxes out there and many employers think they can just “catch up” at the end of the year. It’s important to figure out what his plan is for handling (or ignoring) taxes before you take any action.
If he hasn’t been paying taxes like he agreed to, you can still pay your part of the required taxes. You’ll have to file your taxes without a W-2 (great how to info on doing that), you’ll have to pay the federal and state taxes owed in one big chunk and your employer will suffer the consequences of not paying the required employer taxes or withholding the required employee taxes. This is a hard decision to make, knowing it will get your employer in trouble with the IRS, but you have to do what’s right for you. And remember, he’s not going to end up in prison. He’s just going to be hit with back taxes, interest and penalties.
Q. My employer hasn’t been withholding any taxes from my checks all year and just told me I owe him a huge amount of money. What should I do?
A. Employers are required to withhold Social Security and Medicare taxes on a TIMELY basis. Meaning he can’t come to you at the end of the year and demand you pay him for the past year. If he hasn’t been withholding Social Security and Medicare taxes throughout the year, they’re now his responsibility to pay. This is one of those times when you want to send him to a tax professional for help.
Q. Do I get a W-2 as a nanny?
A. Nannies are considered household employees so you should receive a W-2 from your employer. Your W-2 will list your total gross earnings (how much you made before any taxes were taken out) and the and federal and state taxes withheld for you.
Q. When will I get my W-2?
A. Your employer has until January 31st to get your W-2 in the mail. It’s important to check your W-2 and make sure the numbers listed are correct. Employers, especially those who handle employment taxes themselves, do make mistakes so don’t assume everything is right. Hopefully you’ve been getting (and checking!) a pay stub with every paycheck and know how much you’ve earned and how much has been withheld from your checks throughout the year. If you do find a mistake, bring it to the attention of your employer immediately.
Q. I just got my W-2 and realized that my employer hasn’t been withholding federal or state taxes from my paycheck. Do I have to pay them now?
A. Unfortunately, yes. Your employer is not legally required to withhold state or federal taxes for you although most do since they’re already doing the tax paperwork. Even though your employer didn’t withhold those taxes, you’re still responsible for paying them. They will come due on April 15th. To avoid this issue next year, ask your employer to start deducting federal and state taxes or start saving an appropriate amount from each check so when April 15th, 2013 rolls around, you’ll have the money ready.
Have additional questions or need some help? I suggest contacting HomeWork Solutions or Breedlove and Associates. They’re both are experts in the field and offer top customer support. They both offer free consultations too. And tell them Nanny Biz Reviews sent you!
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