The tax code can come back to harm you in the most unexpected ways. The nanny tax is an example of this.
Did your nanny or caregiver for an elderly relative move in with you during the pandemic? Do you have a live-in housekeeper in your household?
You may have recruited someone to assist you during the difficult times brought on by the COVID-19 debacle.
Perhaps it was only a temporary arrangement, or maybe it has become permanent. The dreaded nanny tax issue might come into play in either situation.
The nanny tax refers to your obligation to withhold and deposit a household employee's and employer's portion on Social Security and Medicare taxes on wages received to the employee.
Let's start by defining who qualifies as a home employee. Household employees, according to IRS Publication 926, Household Employer's Tax Guide, are those who work in households, such as as a nanny, caretaker, private nurse, babysitter, housekeeper, maid, driver, or butler. Only conduct services in or around your own home as part of your household work.
A person is your employee if you control the "how" and the "what" of their job. So, if a person visits your home regularly and you manage their work, they are most likely an employee.
It doesn't matter if the position is full-time or part-time or whether the employee hired through an agency. But, on the other hand, the worker is not your employee if the worker is supplied by an agency that controls what work is done and how it is done.
Yard care workers, pool service people, maids, and others who provide services to the general public and come to your house regularly are not your employees.
If you pay a household employee $2,300 or more during the year, you are subject to the FICA tax in 2021.
The nanny tax requirements are complex, and adhering to them can be a time-consuming chore.
Don't hesitate to contact me if you'd like to talk about the nanny tax.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.