What... (i.e. camp, dance class, birthday party)
        
 
Pick a NYMetroParents Region: All Regions   Manhattan    Brooklyn    Queens    Westchester    Rockland   Fairfield    Nassau    Suffolk  

Resources

   

WHAT FAMILIES WITH HOUSEHOLD EMPLOYEES NEED TO KNOW BEFORE FILING TAXES

     Home  >  Articles  > HOW TO GUIDES
by Stephanie Breedlove February 1, 2013

Related: tax tips for families with hired help and employees, how to file taxes when you have nannies or housekeepers, filing taxes when you have hired help,


This tax season, when filing your family's taxes, don't forget about the household employment tax if your family has hired help like a nanny or housekeeper. Founder and CEO of Breedlove & Associates Stephanie Breedlove provides a checklist of items you need to know about the household employment tax.

This is the time of year when people start thinking about taxes.  For most, the focus is personal income taxes -- assembling a pile of documents and receipts in hopes that it will transform itself into a big refund from the IRS.

Calculator and moneyBut families with a household employee (nanny, housekeeper, health aide, etc.) have another type of tax to think about – household employment taxes. Commonly called “nanny taxes,” these employer obligations are a simplified version of what all other types of employers must manage. 

And like all other employment taxes, the “nanny taxes” go directly toward vital employee benefits and protections. There is a little work and a little cost for employers, but knowing that you’re taking care of the one who takes care of your family -- while preventing your own tax and legal problems -- makes it a worthy cause.

The Household Employer's Checklist

Assuming you paid your employee $1,800 or more during the calendar year and $1,000 or more during any of the calendar quarters, you’ll have the following federal and state obligations:

  • The state of New York and the IRS expect you to establish yourself as a household employer by getting tax IDs.  You’re also required to file a New Hire Report with the state.
  • Using a payroll calculator (we have a free one at www.breedlove.com), you should calculate the tax withholdings from your employee’s pay each pay period and provide her with a paystub and the appropriate net (take-home) pay. You’ll keep track of the wages and each of the taxes withheld.  At the end of each quarter, you’ll file a state employment tax return and remit the state taxes withheld from your employee’s pay and your employer contribution to the state unemployment pool. Four times per year (but on a slightly different timeline than the state returns), you’ll file 1040-ES with the IRS and remit the federal taxes withheld from your employee’s pay, plus your employer contribution to Social Security, Medicare and the federal unemployment pool.
  • At the end of the year, you’ll need to prepare Form W-2 and distribute it to your employee by the end of January, which she’ll use to file her personal income tax return. A common – and extremely expensive – mistake we see is families using Form 1099 to report the wages they paid. Employers use that form for independent contractors, whereas employees should be given Form W-2. The IRS considers household workers to be employees of the family and, therefore, filing Form 1099 results in a form of tax evasion called “worker misclassification.”

  • Finally, you’ll need to attach a Schedule H to your personal income tax return (Form 1040). The Schedule H is very important because it reports the household employer taxes you paid (Social Security, Medicare, federal unemployment), as well as the taxes you withheld from your employee’s pay (Social Security, Medicare, federal and state income tax). The total tax liability shown on your Schedule H is recorded as additional tax owed on your personal income tax return.  However, the 1040-ES payments you make throughout the year offset that liability. Any underpayment or overpayment is reconciled into your refund/payment.

Tax Relief

Without the “nanny taxes,” domestic workers would be left without the critical benefits and protections that all other U.S. workers enjoy.

Good news! If you employ a nanny to take care of your children so you and your spouse can work, you may qualify for two different tax breaks that can offset most – sometimes all – of your household employer costs. The first is a Dependent Care Flexible Spending Account. Most businesses allow their employees to contribute up to $5,000 of the pre-tax earnings to help pay for childcare expenses, which include a nanny’s wages, the employer taxes paid on those wages, any fees paid to a placement agency and any day camps. Using pre-tax earnings means you’ll have no tax liability on that portion of your income. Depending on your marginal tax rate, an FSA can save you more than $2,000 per year.

If you did not set aside money into an FSA in 2012, you can take advantage of the Tax Credit for Child or Dependent Care (IRS Form 2441). This tax credit saves families with one child up to $600 per year; families with two or more children will save up to $1,200 per year.

As you can see, there are some important responsibilities families take on when they become a household employer and there are some financial rewards in the form of tax breaks for doing so. Without the “nanny taxes,” domestic workers would be left without the critical benefits and protections that all other U.S. workers enjoy. 

If you have questions or need personalized help, please don’t hesitate to call us for a free phone consultation at 888-273-3356. We’re here to help our fellow household employers.

Stephanie Breedlove is the founder and CEO of Breedlove & Associates, a subsidiary of Care.com, that has provided comprehensive, guaranteed service that has eliminated the work and worry for more than 25,000 families since 1992. 

Also see:

Ask the Expert: What Childcare Expenses are Tax Deductible?


Get Your FREE Indoor Activity eGuide!

More HOW TO GUIDES Articles

10 Tips to Help Kids Ace Theater Auditions

Pro Tips for Kids Auditioning for Broadway Roles
How to Find a Talent Agent or Manager for Your Child Actor
Triathlons for Kids: How to Get Them Race-Ready
8 Steps to Great Sleep Habits for Babies

Be a good fellow parent and share this with a friend who would be interested
Email Friend

Local HOW TO GUIDES Sponsors

Melissa Giuttari
115 E. 92nd St., Suite 1A (bet. Park & Lexington Avenues)
New York, New York
718-213-8664
...

Star Kidz-Westchester
White Plains/Mount Kisco/NYC locations
914-921-0006
Let Your Child Shine! Star Kidz is the unique s...

Pump It Up Long Island
225 Community Drive
Great Neck, NY
516-466-7867
Hosting a birthday party at Pump It Up is great fo...

Stuk On U
P.O. Box 699
Crompond, NY
877-374-2692
Need the perfect baby shower gift? How about a wel...

Sterling Hills Mine Tour & Museum
30 Plant Street
Ogdensburg, NJ
973-209-6463 MINE)
...
See Our HOW TO GUIDES Directory

local zones

Nassau

Nassau cont.

Suffolk

Suffolk cont.

Westchester

Westchester cont.

Fairfield

Rockland

Rockland cont.

Queens

Queens cont.

Brooklyn

Brooklyn cont.

Manhattan

Copyright 2014 NY Metro Parents Magazine Site Design: THE VOICE