2016 Year End Tax Planning for Households

The end of 2016 is only about 2 weeks away, so it’s important that everything is in order to ensure there are no surprises when it comes time to pay your nanny taxes next year. We recommend not putting off or ignoring your 2016 year-end tax planning. It’s important to look at your finances and think about any changes you will be making for the rest of this year and into early 2017. Some things to consider include:

• Adding/decreasing your employee’s hours during the holiday season
• Awarding a year-end bonus
• Adjusting salary for 2017
• Making note of any minimum wage increases in your state
• Vacation pay for the holiday season

The domestic employee coverage threshold amount will stay at $2,000 for 2017; this means that you are required to pay taxes if you pay a nanny at least $2,000 for the year. Make sure you keep accurate records of any changes you make, along with any changes to any federal or state tax and wage laws.

New W-2 filing deadline

Previously, employers had until March 31st to file their employees’ W-2 forms. New for 2017, you must file your copy (Copy A) of an employee’s Form W-2 and Form W-3 to the Social Security Administration by January 31, 2017. This applies to both electronic and paper forms. The W-3 is a reconciliation of all W-2s for each of your employees, even if you have only one domestic worker.

Schedule H

Also, you’ll need to file Schedule H with your federal income tax return. Schedule H is an annual reconciliation form that is used to report Social Security, Medicare, unemployment, and federal income taxes, as well as wages paid to your employee throughout the year (GTM clients can find these forms under the “Reports” tab in your online account).

Tax credits and reductions

Looking to reduce what you owe? Reimburse your dependent care expenses with pre-tax funds through an employer-sponsored Flexible Spending Account (FSA). You are allowed to set aside up to $5,000 per year of tax-free money. Check with your own employer’s human resources department to see if there is a program available to you.

You can also take advantage of the Child and Dependent Care Tax Credit on your personal income tax return (regardless of income level or filing status). Claim up to $3,000 of qualifying child care expenses (such as your nanny’s salary) for one qualifying individual or up to $6,000 if you have two or more children. You can reduce your taxes by 20 percent of your claimed expenses (i.e. up to $600 for one child and $1,200 for two children).

New mileage reimbursement rate

The IRS recently announced that beginning on January 1, 2017, the standard mileage rate will be 53.5 cents per mile driven for business purposes; the rate was 54 cents in 2016.

Please contact GTM Payroll Services at (800) 929-9213 with any questions you might have.