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:
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?
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Mia Verc, CPA; Janice Papais, CPA
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!