Nanny Tax & Payroll Updates! HomeWork Solutions

G-5 Domestics: Arrived after July 1, 2010?

2010-12-15T13:11:00-05:00

G-5 domestics who are in the United States less than 183 days in their first year working in the US are considered non-resident aliens for Federal income tax purposes and will file a Form 1040NR for the first year of employment.

The IRS has established a new procedure for calculating the amount of income tax to withhold from the wages of G-5 domestics classified as nonresident aliens. A new chart has been created that requires additional income to be added to wages for calculating the tax withholding amount only. In addition, a new withholding table for nonresident aliens must be used in conjunction with the new tax withholding tables used to figure withholding tax on other employees. The result of the new procedure is that withholding for nonresident alien G-5 domestics in 2010 is over 250% more than it was in 2009. To learn more, review section 9 of IRS publication 15 (Circular E) Employer's Tax Guide for 2010. You can download it from the IRS website using the following link: http://www.irs.gov/pub/irs-pdf/p15.pdf?portlet=3.
A G-5 domestic is a non-immigrant visa established to allow certain diplomatic personnel, including eligible staff of Non-Governmental Organizations (NGOs) such as the United Nations, World Bank, International Monetary Fund, etc., to have their family's domestic servants accompany them for postings within the United States. The G-5 domestic is subject to the same taxation as any other wage earner in the United States, and their sponsor (a G-4 visa holder) must report and pay all required Federal and state employment taxes.

Nanny Mileage Reimbursement Rate for 2011 Announced

2010-12-06T12:35:00-05:00

The mileage reimbursement rate typically used to reimburse a nanny for using her personal vehicle to transport her charges to and from school, appointments, activities, etc. has increased one cent in 2011 to $0.51 per mile.

Nanny employers generally use the IRS' business mileage reimbursement rate as a benchmark in nanny employment contracts to calculate the reimbursement to their nanny for the business use of the nanny's personal vehicle. The mileage reimbursement rate is intended to cover both direct costs (gasoline for example) and the anticipated wear and tear, depreciation, and insurance costs.

Families are advised to make sure the nanny has a business use rider on her automobile insurance policy.
Nannies, do you use your personal vehicle for business purposes? Was it a job requirement? How are you reimbursed for that business use?

US Department of Labor Steps Up Enforcement of Worker Misclassification

2010-12-06T08:36:00-05:00

Labor Solicitor M. Patricia Smith addressed a labor law conference on October 12 promising stepped up enforcement of the Fair Labor Standards Act (FLSA) and a crack down on employee misclassification to reverse a “culture of noncompliance” that has developed over the last decade.

Smith stated that due to reduced enforcement, “many employers developed a ‘catch-me-if-you-can' attitude. Our challenge is to change that attitude.” The Labor Department Labor will implement initiatives to respond to complaints from those who might be fearful of government actions, such as immigrant workers.

The Obama administration is keen on punishing the employers in FLSA and misclassification cases. Misclassification refers to the fraudulent classification of employees (nannies, housekeepers, etc. in household employment) as independent contractors. Misclassification, along with the employer's failure to report wages paid to the IRS, results in substantial tax gaps in unemployment insurance, Social Security and Medicare taxes, and state and federal income taxes.

Ignore Taxes on Household Payroll? Maybe not...

2010-12-01T08:40:00-05:00

IRS data places "nanny tax" compliance (declaration by families of their household payroll) at about 20%. Household employment experts believe even this number is optimistic. The IRS has made no particular effort to enforce the household payroll taxes tax, even in it's highly publicized audits of high net worth individuals with assets and income offshore. Looking at these statistics, a new household employer has to think that just ignoring this complicated and expensive issue is relatively risk free.

In today's economy nannies are finding that good jobs take longer to secure. The household who let's their off-the-books nanny go, for whatever reason, should be seriously concerned about their former nanny filing an unemployment claim. The nanny who was perfectly content to receive tax fee income experiences a reality check when they have no income for weeks, or months. Suddenly, filing an unemployment claim seems the only option to avoid eviction or to put food on the table. Once that claim has been filed, the whistle is blown on the former household employer. Since state unemployment systems share this information with the IRS, everyone is on notice that the family employed the nanny and that there are no tax returns on file.

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

The financial risk to the household in these cases is significant. The household employer 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.

The family considering employing their nanny and skipping the household payroll taxes needs to seriously consider their risk tolerance.

We publish a free e-Book, the Nanny Payroll Tax Quick Start Guide. Learn more about the "nanny tax" and the household employer's legal and financial obligations!

Download HomeWork Solutions' free e-Book, the Nanny Payroll Tax Quick Start Guide.

FUTA Credit Reductions: Michigan, South Carolina & Indiana Employers

2010-11-15T08:58:00-05:00

The long recession with persistently high unemployment has driven unemployment benefit funds into insolvency in 35 states. These states have borrowed from the Federal government to keep their citizens receiving benefits.

All US employers make payment of Federal unemployment taxes known as FUTA. The FUTA system is the insurance for the various state systems, and insures that states administer their unemployment insurance systems in accordance with Federal regulations. When a state borrows against this fund, they have certain repayment obligations for the amount borrowed plus interest. The following states are currently in default and employers in these states are almost assuredly going to pay higher FUTA taxes as a result. The FUTA rate most employers actually pay is 0.8% of the first $7000 of wages paid to each employee in the year (typically $56 per employee).

Michigan: 2nd year in default, employers will pay FUTA of 1.4%
South Carolina: 1st year in default, employers will pay FUTA of 1.1%
Indiana: 1st year in default, employers will pay FUTA of 1.1%

It is widely anticipated that the new Congress will consider granting states (and their employers) some relief in this area in the 2011 legislative session as about half of the states will be subject to the penalty for 2012 and as many as 35 states by 2013.