Monday, January 16, 2006
1099ing the Nanny...
I receive a lot of correspondence at this time of year about families reporting a nanny's salary via Form 1099. What this means is that the nanny is being treated as an independent contractor, responsible for paying all of her own taxes.
Families perceive this as a convenience - and a money saver. More on that later...
Nannies are confused. When they go to have their taxes prepared, they are shocked by the amount of tax that they owe. Why?
When a nanny receives a 1099, the family has not paid the family's share of the Social Security and Medicare taxes. The nanny is responsible for the 'self employment tax' - in essence both the employee Social Security and Medicare tax contribution and the amount usually contributed by the employer (family). For a nanny earning $400 per week (the low end of the salary scale) the additional tax is $1590!
Reporting the nanny wages on a Form 1099 saves the family from making their contribution to the nanny's Social Security and Medicare - as well as avoiding the state unemployment taxes. The family avoids tax of about $2000 on the $400/week nanny and pushes $1590 of that tax on to the nanny.
The Form 1099 should only be used when the nanny compensation is less than $1400 in 2005. Any nanny earning $1400 or more should require the Form W2, which insures that the family has paid their share of the taxes. IRS regulations specifically state that the nanny IS NOT a contractor, and all nannies earning $1400 or more in the year should be reported via Form W2.
Families, think about this. The nanny cares for your children, enabling you to pursue your professional interests. The nanny salary is already quite low. Pushing this tax burden onto the nanny is not only unfair, but it jeopardizes the nanny: family relationship once the ramifications are known. Families go to great lengths to find a nanny they are comfortable with - is $2000 a year worth loosing the nanny?
We post a very straightforward FAQ about nanny taxes at http://www.4nannytaxes.com/faq/index.cfm. Families and nannies alike are encouraged to become familiar with their respective tax obligations. Families needing help in W2 or other Nanny Tax compliance are encouraged to talk to the staff at HomeWork Solutions (800.NaniTax) to learn about their professional services.
I receive a lot of correspondence at this time of year about families reporting a nanny's salary via Form 1099. What this means is that the nanny is being treated as an independent contractor, responsible for paying all of her own taxes.
Families perceive this as a convenience - and a money saver. More on that later...
Nannies are confused. When they go to have their taxes prepared, they are shocked by the amount of tax that they owe. Why?
When a nanny receives a 1099, the family has not paid the family's share of the Social Security and Medicare taxes. The nanny is responsible for the 'self employment tax' - in essence both the employee Social Security and Medicare tax contribution and the amount usually contributed by the employer (family). For a nanny earning $400 per week (the low end of the salary scale) the additional tax is $1590!
Reporting the nanny wages on a Form 1099 saves the family from making their contribution to the nanny's Social Security and Medicare - as well as avoiding the state unemployment taxes. The family avoids tax of about $2000 on the $400/week nanny and pushes $1590 of that tax on to the nanny.
The Form 1099 should only be used when the nanny compensation is less than $1400 in 2005. Any nanny earning $1400 or more should require the Form W2, which insures that the family has paid their share of the taxes. IRS regulations specifically state that the nanny IS NOT a contractor, and all nannies earning $1400 or more in the year should be reported via Form W2.
Families, think about this. The nanny cares for your children, enabling you to pursue your professional interests. The nanny salary is already quite low. Pushing this tax burden onto the nanny is not only unfair, but it jeopardizes the nanny: family relationship once the ramifications are known. Families go to great lengths to find a nanny they are comfortable with - is $2000 a year worth loosing the nanny?
We post a very straightforward FAQ about nanny taxes at http://www.4nannytaxes.com/faq/index.cfm. Families and nannies alike are encouraged to become familiar with their respective tax obligations. Families needing help in W2 or other Nanny Tax compliance are encouraged to talk to the staff at HomeWork Solutions (800.NaniTax) to learn about their professional services.
