{"id":21311,"date":"2020-01-14T10:25:36","date_gmt":"2020-01-14T15:25:36","guid":{"rendered":"https:\/\/gtm.com\/household\/?p=21311"},"modified":"2020-05-01T14:11:13","modified_gmt":"2020-05-01T18:11:13","slug":"getting-nanny-taxes-organized","status":"publish","type":"post","link":"https:\/\/gtm.com\/household\/getting-nanny-taxes-organized\/","title":{"rendered":"Get Your Nanny Taxes Organized for Tax Season"},"content":{"rendered":"
\"getting-nanny-taxes-organized\"

Owe nanny taxes? Here are six steps plus one bonus piece of advice for organizing your nanny taxes and being prepared when you need to file your return.<\/p><\/div>\n

The clock is ticking but there\u2019s still time to get your nanny taxes organized and ready for tax filing season. Your first deadline is January 31, 2020, so if you haven\u2019t started preparing you should do so now.<\/p>\n

Here are six steps plus one bonus piece of advice for preparing your nanny taxes.<\/p>\n

1. Determine if you owe nanny taxes<\/h2>\n

If you paid your household employee more than $2,100 in 2019, then you must pay 7.65 percent in Social Security and Medicare taxes on your employee\u2019s wages. Obviously full-time workers clear this threshold easily and many part-timers will too especially if they worked most of the year. If you hired a nanny for the summer, an after-school caregiver, or an in-home senior caregiver for a short time, you still may have a nanny tax obligation.<\/p>\n

Also, if you paid an employee $1,000 or more in any calendar quarter, you\u2019re liable for federal (FUTA) and state unemployment (SUI) taxes. FUTA is six percent on the first $7,000 in cash wages. You may be able to reduce your FUTA tax responsibility based on your SUI contributions.<\/p>\n

2. Calculate your nanny tax responsibility<\/h2>\n

Hopefully, at this point, you know what you owe in nanny taxes and have even been remitting taxes quarterly, so you don\u2019t have to pay your entire responsibility when you file your return. You could also have your employer withhold more from your pay during the year to help cover your nanny taxes when you file.<\/p>\n

If you\u2019re starting from scratch, here\u2019s how to get caught up on your nanny tax obligations<\/a>.<\/p>\n

3. Prepare Form W-2 for your employee<\/h2>\n

Just like employees in the traditional workforce, household workers need to receive Form W-2 by January 31, 2020.<\/p>\n

Your employee needs Form W-2 in order to file their own personal tax return. It details their wages and federal income, Social Security, and Medicare taxes that were withheld.<\/p>\n

It\u2019s a good idea to confirm your employee\u2019s correct legal name, Social Security number, and address before issuing Form W-2. That can eliminate some problems when your employee files their tax return.<\/p>\n

Don\u2019t classify your employee as an independent contractor and issue them a 1099. This is considered felony tax evasion because you’re shifting the entire tax obligation to your employee and that can land you in a lot of trouble. With rare exceptions, the IRS considers household workers to be employees and not independent contractors. That\u2019s because you control the employment relationship by determining when your employee works and how they should do their job as well as providing the tools and equipment to do the job.<\/p>\n

You could file Form SS-8 with IRS<\/a> to determine your employee\u2019s status. But you don\u2019t have a lot of time with Form W-2 due at the end of January.<\/p>\n

Independent Contractor or Employee? How to Classify Your Nanny<\/a><\/p>\n

4. File Form W-2 and Form W-3 with the Social Security Administration<\/h2>\n

By January 31, 2020, you\u2019ll also need to file Copy A of Form W-2 and Form W-3 (Transmittal of Wage and Tax Statements) with the Social Security Administration.<\/p>\n

All employers, including families with household help, need to file Form W-3 to report their employee wages and tax withholdings. Form W-3 form combines wages and withholdings for all your employees. Even if you have just one employee, you\u2019ll still need to file Form W-3.<\/p>\n

You send these forms by mail or file them electronically.<\/p>\n

More information from the Social Security Administration on filing forms W-2 and W-3<\/a>.<\/p>\n

5. Take advantage of the Child and Dependent Care Tax Credit<\/h2>\n

You may be able to claim a portion of your employee\u2019s wages for the Child and Dependent Care tax credit (Form 2441)<\/a>. The person being cared for must be a dependent who is under 13-years old or a spouse or dependent who is physically or mentally incapable of self-care. There is no age limitation for spouses and other dependents. However, they must have lived with you for more than half the year.<\/p>\n

To qualify, you must have incurred these expenses so you could work or look for work. The total expenses you can claim with the Child and Dependent Care Tax Credit is $3,000 for one child\/dependent and $6,000 for two or more children\/dependents. The credit is 20 percent for anyone earning $43,000 or more. That means the potential maximum credit is $600 (20 percent of $3,000) for the care of one person and $1,200 for two or more children\/dependents.<\/p>\n

If you contributed to a Dependent Care FSA through your employer, expenses reimbursed through that account can\u2019t be used for the Child and Dependent Care Tax Credit. The credit will only be applicable to the expenses that exceed your client\u2019s Dependent Care FSA contributions.<\/p>\n

For example, if you have two children and contributed $5,000 to a Dependent Care FSA, you could apply $1,000 to the Child and Dependent Care Tax Credit before you hit the $6,000 maximum for the tax credit.<\/p>\n

On Form 2441, you must provide your caregiver\u2019s name, address, and Taxpayer Identification Number (in the case of household employees, this would be their Social Security Number).<\/p>\n

You can\u2019t claim the credit if the caregiver was your spouse, a parent of the dependent child, a dependent listed on your tax return or your child who is age 18 or younger.<\/p>\n

Some states may also offer a similar credit for child and\/or dependent care.<\/p>\n

6. Get familiar with Schedule H<\/h2>\n

Schedule H (Household Employment Taxes)<\/a> gets filed with your personal tax return. This is where you will report the household employment taxes \u2013 Social Security, Medicare, and federal unemployment taxes \u2013 that are owed for the tax year. You\u2019ll enter the cash wages you paid to your employee and calculate what you owe in nanny taxes. You\u2019ll also need to know how much you contributed in state unemployment taxes as you may be able to significantly reduce the amount owed in FUTA taxes. Finally, you\u2019ll include the amount owed in nanny taxes from Schedule H<\/a> to your Form 1040.<\/p>\n

Bonus: Call GTM Payroll Services and avoid tax-time hassles<\/h2>\n

The easier way is to let GTM Payroll Services manage it all for you. Skips the hassles of calculating taxes and filing forms and stop worrying if you\u2019re doing it right or not. We\u2019ll handle paying your employee with direct deposit, withholding and remitting all taxes, and filing\/preparing year-end forms. All with the best client service in the business. Call (800) 929-9213 for a free, no-obligation consultation with a household employment expert.<\/p>\n

Download The Complete Guide to Household Payroll<\/h2>\n

Get our complimentary guide and learn everything you need to know about paying your employees legally and filing your taxes the right way.
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