Agency Partners in the News

HomeWork Solutions has partnered with leading nanny placement and referral agencies nationwide since 1993.

Several of our partner agencies have been cited in news reports recently.

Nannies on the Go, Southlake TX, was consulted by TV33 on a feature about mothers returning to the workforce due to the current economic crisis. Owner Sharon Moloney reports that these mothers are extraordinarily concerned about just who will be caring for their children when they are working. Nannies on the Go, a member of the Alliance of Premier Nanny Agencies, performs thorough background screening on every nanny it refers.

A Friend of the Family Home Services, Inc., an Atlanta GA-area in-home childcare and adult care referral service, hosted a nanny professional development day November 8, 2008. They recognize that nannies with up to date credentialing (CPR, First Aid, etc.) and strong interpersonal skills are more competitive in the job market. The free workshop, entitled "Polished, Professional and In Demand," provided nannies with the knowledge to present themselves as more confident and capable.

Bob King, Esq. of Legally Nanny, Orange County California has been consulted by several reporters in the last few months. Mr. King's firm provides household employers assistance in a variety of legal matters including work agreements, confidentiality agreements, severance agreements and client defense. Mr. King reports an uptick in clients requiring assistance with unemployment claims. These clients largely had paid their nanny in cash with no tax reporting, and had a difficult and costly process in front of them to 'get whole' with the IRS and state taxing authorities. This is a growing problem for families faced with unexpected job loss or economic reversals. They can no longer afford the nanny, let her go, and she files for unemployment benefits. Many of these nannies really had no choice as they too face a challenging employment market.

Don't want to be one of those families caught after the fact with a huge tax liability? Consider one of HomeWork Solutions' family friendly nanny tax compliance services - we can help you get it right the first time. No worries - just go ahead and simplify with HomeWork Solutions!

2009 Transportation Fringe Benefits Increase

The Transportation Equity Act for the 21st Century (known as TEA-21) established and adopted by the U.S. Congress in 1999 allows employers to offer to their employees a pre-tax fringe benefit for qualified transportation. In January 2000, the IRS issued regulations under IRS Code Sec 132(f)(4) to administer this plan.

The monthly limit for transit passes and commuter highway vehicles that are qualified transportation fringe benefits is $120.00 in 2009. The monthly limit for the qualified parking benefit will increase to $230 in 2009, up from $220 in 2008. While the legislation clearly intends for the employer to provide the actual transit pass, not a cash advance for its purchase, cash reimbursement is allowed if the employer can demonstrate that they would incur a significant administrative expense if they pre-purchased and distributed the pass. We recommend that the employer require the nanny provide a receipt to qualify for the reimbursement.

The provision of transit passes by employers to their nanny or housekeeper, subject to the monthly limits, is a pre-tax benefit. Everyone wins because taxes are reduced for employers as well as employees.

Applying for Work in the Obama Administration

The issue of household employees and payment of the nanny taxes is once again front and center in the vetting of potential Obama administration staffers. I imagine that more than a few applicants are going to discover that non-payment of the "nanny taxes" can be a career limiting decision in Washington DC!

The published 63 question Employment Questionnaire includes the following:

(53) Do you presently have or have you in the past had occasional (to be sure, a monthly housekeeper is covered) or regular domestic help? (e.g. a housekeeper, babysitter, nanny or gardener) If yes, please indicate the name and years of service for each individual and also provide a brief description of the services rendered.

(54) Were all individuals listed in Question 49 [sic] legally eligible to work in the United States at the time you employed them?

(55) Have you paid all taxes and social security obligations applicable to the employment of the individuals listed in Question 49 [sic]? Do you use an outside service to pay such individuals? Have all payments related to the employment of these individuals been made in a timely manner? If not, please identify the length and reason for the delay(s).

(56) Have you complied with all federal, state and local laws and regulations related to the employment of the individuals listed in Question 49 [sic]?

(View the entire questionnaire.)

Nanny Holiday or Year End Bonuses

Q. How big of a holiday bonus will my nanny expect?

A. Holiday or year end bonuses are OPTIONAL - approximately half of our clients report paying end of year bonuses. The amount is typically one, sometimes two weeks pay. For newer nannies, most families fall back on the one day for every month of employment, up to a week. So the nanny who started in October might get 3 days pay as her bonus.

Many families have employment contracts that obligate a bonus at the employment anniversary date - a retention bonus. When these arrangements are in place, there is often either no holiday bonus or a very modest one.

Q. Due to current economic conditions, I cannot afford the size bonus I paid last year. How do I handle that?

A. Your nanny hears the news too. Most employees, not simply nannies, have adjusted their expectations downward, and most are happy to get any bonus. I recommend that you acknowledge this to your nanny. Something to the effect "Times are rough, and I wish this bonus could be as generous as last year's." Make sure you use the words to express your gratitude for the services your nanny provides; most professional nannies would agree that a financial bonus is nice, but the words sincerely offered are always remembered.

Q. Are nanny holiday bonuses and gifts taxable?

A. Yes. Basically, according to the IRS, there is no such thing as a GIFT between and employer and an employee. Anything of value given by an employer to an employee is considered compensation, subject to reporting and employment and income taxes.

The only way to skirt the issues of reporting the gift or bonus on the nanny's W-2 is to give her something with a 'de minimis' value - something so small that it is administratively impractical to perform a valuation and include it in compensation. This absolutely rules out CASH and dollar-value gift cards, but might allow other small expressions of gratitude such as a framed photo of the nanny with her charges.

The IRS does not define 'de minimis' by any specific value. A business gift is considered 'de minimis' if the value is less than $25. Many employers use the same measurement - hence the holiday ham or turkey. Gift cards with a dollar value or 'cash equivalent', however, even under $25, would be considered compensation.

Any cash you give to an employee at any time - whether it's a salary, bonus, or holiday gift - must be added to the employee's W-2 income. As a cash equivalent, a $50 gift certificate or gift card is $50 of taxable income.

In a Tough Economy, Families Ignore the Nanny Tax at their Peril

Internal Revenue Service data for the period 1996 - 2006 indicate that nanny tax filings had dropped 26%. With total nanny tax filings of 225,441 in 2006 and an estimated 1.2 million nannies, voluntary nanny tax compliance is in the 20% range. According to a Wall Street Journal report, "growth in online hiring, and the casual, cost-averse attitudes of parents who find their nannies on the Web" are the primary causes for the poor compliance figures.

In a tough economy, nannies often find their jobs disappear when one of the parents looses their job or faces a significant drop in income. These nannies were happy to be paid "under the table" in cash when times were good. However, faced with a difficult job market, many of these same nannies will find their way to the unemployment office to file for benefits to tide them over between jobs.

This is when the laws of unintended consequences come into play.

The financial risk to the family in these cases is significant. The family has the obligation for remittance of the payroll taxes, not the nanny. A nanny who was being paid $400 cash has little or no income tax obligation on her wage - her risks for coming forward are nominal, and insignificant in the face of her lost earnings and need for unemployment benefits. The family, however, has approximately a $3700 back tax bill for just one year - and that is before penalties, interest, and the cost for professional assistance amending previously filed income tax returns. Consider for a minute that in metro areas the nanny cash wage is often $500 - $600 a week or more and the liability grows substantially.

There is no statue of limitations on payroll taxes - two or three years of back nanny taxes can quickly add up to the price of a small car.

It is true that nanny tax avoidance is the norm. The IRS has made no effort to enforce this tax in the last decade. A bad economy and the suddenly unemployed nanny, however, will bring the whole house of cards down quickly. Is this a risk that you are comfortable with?

More information about the risks of nanny tax avoidance can be found in 4nannytaxes.com's FAQ.