Nanny Tax Changes for 2009

Tax law and tax rates are typically adjusted on an annual basis. Going into 2009, here are some changes nanny employers need to be aware of:

1. If you pay a nanny or other household employee $1700 or more in calendar year 2009 you are responsible for employment taxes and the issuance of W-2 form to the nanny at year end. This is an increase from the 2008 threshold of $1600.

2. The Federal Unemployment Tax threshold remains unchanged. If you pay a nanny or other household employee $1000 or more in a calendar QUARTER you are subject to both Federal (FUTA) and state unemployment taxes. Some states, including New York, the District of Columbia, and California have lower wage thresholds that obligate state employment tax payments.

3. If you pay a nanny or other household employee between $600 and $1699 in calendar year 2009 you are responsible to report these payments and provide the employee a Form 1099. This is the only wage payment window for which a 1099 form is appropriate. Once you hit $1700 in payments, a W-2 is the only appropriate annual form.

4. Federal income tax rates have changed. Many state income tax rates have changed also. If you withhold your nanny's income taxes, please verify the calculations for withheld income taxes before your first 2009 payroll. The free Nanny Tax calculator at the 4nannytaxes.com website is available to assist you.

HomeWork Solutions (4nannytaxes.com) is the nation's leading preparer of "Nanny Tax" returns and an industry expert in payroll and compliance issues for any type of domestic employment situation. Our team of specialists support individual employers, CPA's and trust companies that require assistance with nanny payroll and nanny tax compliance.

2009 Nanny Tax Withholding Rates Published

The popular Nanny Tax Calculator at the HomeWork Solutions website (4nannytaxes.com) has been updated with 2009 withholding tax rates.

Nannies and nanny employers who wish to compute the correct payroll deductions for 2009 payroll are invited to do so.

Please note also that there are many changes to minimum wage rates scheduled to be implemented January 1, 2009. HomeWork Solutions publishes an index of minimum wage mandates by state at the 4nannytaxes.com website.

Employer Jailed for Paying Under the Table

The owner of a Palm Beach County construction company was sentenced Dec. 5 to four years in prison for engaging in a payroll tax evasion scheme. Leroy Edward Felt Jr., the owner of Woody's Construction Inc., pled guilty to underpaying about $2 million in federal payroll taxes between 1997 - 2003, prosecutors announced (United States v. Felt, S.D. Fla., No. 08-80021-CR-Hurley, sentencing 12/5/08). Mr. Felt conspired to defraud the Internal Revenue Service by paying cash wages to many of Woody's employees and thus did not withhold or pay payroll taxes on these wages, the statement said.

The IRS website lists multiple cases of prosecution for employment tax fraud. HomeWork Solutions Inc. is the nations's leading preparer of "Nanny Tax" returns and an industry expert in payroll and compliance issues for any type of domestic employment situation. We offer fast and confidential catch-up services to families in arrears of their household employment payroll tax (nanny taxes) reporting obligations.

Do I have to pay payroll taxes for the cleaning lady that comes weekly?

Any individual whom you employ to provide services in your home whom you pay directly AND whose total payments in the calendar year meets the IRS household employment threshold ($1600 in 2008) must receive a W-2 from the employer (family) and the employer must pay the payroll taxes.

• Social Security & Medicare Taxes (15.3% of Gross Wages - employer may collect 7.65% from the employee via deductions.)


• State Unemployment Taxes where required.


• Federal Unemployment Tax (FUTA) where required.

The employer is solely responsible for the remittance of the Social Security and Medicare taxes. Should the employer fail to collect this tax from the employee via periodic payroll deductions, the employer remains responsible to remit or pay the tax to the IRS. The household employee CANNOT remit their share of Social Security and Medicare tax independent of the employer.

Many families try to classify their weekly (bi-weekly, monthly) cleaning ladies as independent contractors. In the vast majority of circumstances, this is a total legal fiction. This usually only works if the worker is properly incorporated, bonded and licensed in the trade and maintains "corporate formalities."

If you wish to avoid this obligation, we recommend that you engage a cleaning service. You will lose both the control over who is sent to your home and lose your payroll tax obligations. Examples of such firms are Merry Maids, the Maid Brigade, Jiffy Maids, Molly Maids * - you can locate by Googling "home cleaning service YourTown YourState." When you hire a service, you make your payments to Cleaning Services Inc. or Cleaning Services LLC - and not to Mary Jones.

* Provided for illustration only - HomeWork Solutions does not specifically endorse or recommend any particular home cleaning service.

Mileage Reimbursement Rate Decreases Jan. 1, 2009

The IRS announced that effective January 1, 2009, the standard mileage reimbursement rate will become 55 cents per mile, an decrease from rate of 58.5 cents that has been in effect since July 1 2008.

The standard mileage rate is established by the IRS, and the rate may be used by employers to reimburse employees for the business use of their personal automobiles. This is the reimbursement rate guideline that most nanny employers utilize to determine the mileage reimbursement for a nanny who uses her personal vehicle to transport the children and run errands. The rate typically adjusts once per year, with announcements made in November for the next year's rate.