MONARCH ACCOUNTING GROUP
  • Home
  • Solutions
    • CFO Services
    • Cloud ACCOUNTING
    • Bookkeeping Services
    • QuickBooks Training
    • Income Taxes
    • Other Services
  • Resources
    • Tax Rates
    • SmartVault
    • Tax Tips
    • Tax Organizer
    • Record Retention Schedule
  • Reviews
  • Meet Us
  • Blog
  • Contact Us

The Household Employee Problem Don't get caught by the nanny tax

7/4/2021

0 Comments

 
This often overlooked bookkeeping and payroll tax requirement can cause a tangle of tax problems if not handled correctly. Could you be impacted? This is what you need to know.

Nanny tax explained
In an effort to capture income from household employees, the tax code requires you to obtain employee information, pay the related state and federal taxes, and withhold taxes for anyone you employ around the house. The requirement comes into play if you pay any one individual $2,300 or more (in 2021). You must then submit a W-2 for each of these household employees.

Who is covered?
The household workers typically covered by this law include:
  • babysitters
  • caretakers
  • house cleaners
  • domestic workers
  • drivers
  • health aides
  • housekeepers
  • maids
  • nannies
  • private nurses
  • yard workers

Employee or Not an Employee
Before you panic, first determine whether your help is an employee or not. If in the eyes of the tax code, your help is not an employee the nanny tax rules DO NOT apply. What does the IRS look for?
  1. Who controls how the work is done? If the worker clearly does, then the person is self-employed and not your employee.
  2. Whose tools are used? If the worker’s tools are used then they are more likely self employed and not your household employee.
  3. Work exclusively for you? If the worker has a number of customers then they are less likely to be your household employee.
  4. Does an agency supply the worker? If an agency supplies the worker and controls what work is done and how it is done, the worker is not your employee.
  5. Daycare services at an offsite location. If your childcare is conducted in the worker’s home, that worker is generally not your employee.​​
Some Suggestions
  • Have your help become incorporated. The reporting rule only applies to hired individuals. If your household help is in a LLC or Sub chapter S-Corporation, it is up to that company to employ the worker and pay their employment taxes.
  • Be aware of the annual limit. Make sure your total payments do not exceed the reporting threshold each year.
  • Determine if the hired help are truly employees or self-employed.
  • Rotate services. If you have help with yard work consider employing a number of helpers to make sure no one person is paid above the reporting threshold.
  • Make the determination now. If you think you may have a household employee, ask for a review. Waiting until the end of the year can create a reporting problem for tax payments due during the course of the year.
  • Follow the IRS checklist. If you know you are hiring a qualified household employee, here is a brief checklist provided by the IRS to help keep you out of harm’s way:
  • Find out if the person can legally work in the U.S. (form I-9)
  • Find out if you need to pay state taxes
  • Withhold social security and Medicare taxes
  • Withhold federal income tax if required
  • Determine if you are required to pay federal and/or state unemployment taxes
  • Determine the payment method and make tax payments
  • Get an employer identification number (EIN)
  • File W-2s each year and provide copies to your household employees
  • File household employment tax form with your annual tax return
  • Keep good records

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 
​

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.  
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA;  Janice Papais, CPA

0 Comments

Your comment will be posted after it is approved.


Leave a Reply.

    BLOG

    To better serve our clients and friends, to keep you up-to-date and informed, our blog is a resource for tax tips and overall accounting related articles. We hope you find this useful!


    CATEGORIES​

    All
    Business Owners: Must Know
    IRS Tax Tip
    Monthly Newsletter
    Tax Return: Must Know
    Tax Tip Of The Week


    ARCHIVES

    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015

    RSS Feed

Picture
Picture
Picture
Picture
Phone: (630) 320-3720

Monarch Accounting Group Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527-7836
Email: Info@MonarchAccountingGroup.com


Picture
Picture
Picture
Picture
Picture
Picture
Picture
Picture
  • Home
  • Solutions
    • CFO Services
    • Cloud ACCOUNTING
    • Bookkeeping Services
    • QuickBooks Training
    • Income Taxes
    • Other Services
  • Resources
    • Tax Rates
    • SmartVault
    • Tax Tips
    • Tax Organizer
    • Record Retention Schedule
  • Reviews
  • Meet Us
  • Blog
  • Contact Us