Nanny Issues with e-Filing Federal Tax Return?

Throughout tax season we get reports from clients that their nanny's e-filed income tax return was rejected. The following are the most common reasons:

Mismatch between nanny's name on the tax return and the IRS records. Correcting this requires a visit to a local Social Security Administration office, the completion of SSA Form SS-5, and original or certified documents attesting to the name change (marriage license, divorce decree, etc.).

The EIN on the nanny's W-2 is not found. This is typical for EIN's issued within 90 days of the attempted tax filing. Unfortunately, IRS databases do not all synchronize overnight. Paper filing is the best option in this situation.

Employee's SSN or ITIN not found. Similar to reason above, if this is the first year that the employee has ever filed a tax return and has never been a dependent on another return, paper filing is the best option.

Of course, all of the above problems could simply be the result of a typographical error. Your rejected tax filing can be corrected and resubmitted if that is the situation.

Some Massachusetts Employers Get a Reprieve

Massachusetts is working to get all employers, including nanny employers, to report (and pay) withholding taxes, wages paid in a quarter, and unemployment taxes online - replacing a paper process that had employers mailing 3 paper forms to 3 different addresses every quarter with one simple online process. Sounds good - right?

Well - maybe! The system went online first quarter 2009 and was MANDATORY. It worked reasonably well for employers with BOTH withholding tax and unemployment taxes. It worked NOT AT ALL for household employers who were reporting unemployment taxes only. It seems they forgot in development that there were some Massachusetts employers who were not obligated to deduct income taxes - household employers. Many clients with simply a weekly housekeeper found themselves with no way to pay unemployment taxes. The solution was the state granted them a waiver for paper forms until the new system, launched December 7, went online.

There have been so many problems with the payment portal opened on December 7 that Massachusetts has extended the employer's deadline for payment of unemployment (NOT withholding) taxes until February 16 so they can work out the "kinks."

This is not a concern for premium clients - we handle all your tax reporting and will work diligently to insure the taxes and wage reports are filed timely. Our NaniTax (DIY) clients are referred to the online employer's user guide for help or to phone 617.626.5075 to speak to a representative. The paperwork provided in your year end folder provided all account numbers and amounts to be report, plus calculated amounts due, to facilitate your compliance.

Court Affirms Nannies are Non-Exempt Employees Under the FLSA

In an incredibly interesting and complicated court case involving:

Wrongful Discharge

Breach of Employment Contract

Unpaid Wages

Unpaid Overtime

the United States District Court, D. Oregon affirmed that nannies are indeed non-exempt employees and are entitled to hourly pay and overtime pay for hours worked in excess of 40 in a work week. The court further affirmed that a work agreement that was expressly for a 24 month period of time (rather than "at will") was enforceable.

If you employ a nanny, or are considering employing any household employee, I encourage you to read the court's decision. This is a text book case of what an employer should not do in household employment.

HomeWork Solutions' online FAQ provided detailed discussion of many of the FLSA issues addressed in this case, including the applicability of overtime in household employment. Our free sample nanny work agreement templates specifically address "at will" employment.

Is your nanny married? Do you deduct income taxes?

If you answered yes to both of these questions, PLEASE recalculate her paycheck deductions using the 2010 rates ASAP.

For a married nanny earning $18,000 a year, her Federal income tax withholding could have doubled. If she earns $22,000 it could go up by a third!

Why?

2009 post-stimulus rates spread the "Making Work Pay" tax credit across only 9 months - April through December. This year the tables spread it across the full calendar year. This impacts ALL wage earners, not just the married ones.

Married wage earners are impacted even more with the new tables, as they correct assumptions the IRS made in 2009 that could cause many married couples to have had too little tax taken out in 2009 - an unpleasant surprise at tax time!

The 4nannytaxes.com online nanny tax calculators are updated for these new 2010 rates. Clients making a net pay adjustment, please don't forget to inform the office staff!

Nanny Payroll New Year's Tip

Payroll tax reporting is based on the day the employee received payment (constructive receipt) for the services.

Therefore, if you pay for the week 12/28/2009 - 1/1/2010 on Friday January 1, 2010, this is treated as 2010 wages, reportable in the first Quarter of 2010 and included in the 2010 Form W-2.

On the other hand, if you pay for the week 12/28/2009 - 1/1/2010 on Thursday December 31, 2009 this is treated as 2009 wages, reportable in the 4th Quarter of 2009 and included in the 2009 Form W-2.