Nanny Tax Compliance - Too Time Consuming?

I have been providing Nanny Tax compliance services since 1993. I could literally do the work in my sleep. In my mind - a piece of cake! That familiarity sometimes can cause me to loose sight of the biggest advantage to employers in outsourcing nanny tax compliance - the time saved.

How much time an individual would spend on their nanny taxes will of course vary between individuals. The IRS estimates that record-keeping, keeping familiar with the law, and tax return completion can run 50 hours per year. Record-keeping accounts for the lions share of the time, averaging an hour per payroll period.

I was chatting with a client today. This gentleman has used our services for many years, and his household circumstances are changing. In the course of the conversation, I asked him what factors caused him to continue using our services year after year. He answered without hesitation "The time savings!" He went on to state that he actually spends only about one hour a year on his nanny taxes - primarily in collecting his information and responding to our quarterly requests for wage reports. (This client is a NaniTax Plus subscriber.) He was certain that he had never filed a tax return on time before hiring HomeWork Solutions, and that the savings in late fees alone was more than our fee. I suspect some exaggeration, but not much!

HomeWork Solutions allows registered clients to calculate their payroll online and save all their payroll records to their account. Reporting wages is as easy as logging into your account, selecting the payroll records and electronically submitting them for processing. Status emails are the norm - we confirm you have sent your information, we confirm we have received your information, we confirm tax amounts due when we are collecting the taxes, and we confirm when your quarterly or annual package mails. Or, as this client remarked, "I send you the information I don't need to think about it again."

US Minimum Wage Increase

The minimum hourly rate rises today to $5.85 an hour. In the 22 states with state minimum wage rates in excess of the Federal rate, the higher rates continue to apply. All calculators and tables at the 4nannytaxes.com website have been adjusted for this increase.

Your Nanny and Form 1099

A nanny called for advice yesterday. She has worked for the same family for a few years and they always gave her a Form 1099 to report her wages at year end. This is a form given to independent contractors, and obligates the contractor to pay both the employer and employee portions of Social Security and Medicare taxes.

The nanny had a family emergency last year, and long story short fell behind in her taxes. She and her husband met with the IRS yesterday to work out a payment plan. The revenue agent, knowing that she is a nanny, asked why she was filing a 1099 instead of a W-2. He explained the financial impact to her and she was shocked.

The nanny and her husband owe the IRS about $12K for 2006. Of that $2800 (plus accumulated penalties and interest) is Social Security and Medicare taxes that should have been paid by her employer. I referred her to IRS Publication 926 and suggested she have a conversation with her employer.

A nanny, housekeeper, maid and most other domestics are employees of the household they work for. The employer is responsible to report wages and remit Social Security and Medicare taxes to the IRS, provide the worker(s) a W-2 form at the end of the year, and in most cases make payments to their state's unemployment insurance fund on a quarterly basis. The HomeWork Solutions' Frequently Asked Questions addresses this an many other matters employers need to know about their Nanny Tax obligations.