Nanny Tax & Payroll Updates! HomeWork Solutions

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

noreply@blogger.com (Kathleen Webb) — Wed, 15 Dec 2010 18:11:00 Z

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

noreply@blogger.com (Kathleen Webb) — Mon, 06 Dec 2010 17:35:00 Z

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

noreply@blogger.com (Kathleen Webb) — Mon, 06 Dec 2010 13:36:00 Z

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...

noreply@blogger.com (Kathleen Webb) — Wed, 01 Dec 2010 13:40:00 Z

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

noreply@blogger.com (Kathleen Webb) — Mon, 15 Nov 2010 13:58:00 Z

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.

Your regular cleaning lady and the Nanny Taxes

noreply@blogger.com (Kathleen Webb) — Wed, 10 Nov 2010 17:32:00 Z

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 ($1700 in 2010) 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, XYZ Cleaning Services, 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.

Nanny Bonus for Holiday or Year End?

noreply@blogger.com (Kathleen Webb) — Tue, 09 Nov 2010 16:53:00 Z

We field client questions about end of year holiday bonuses for nannies every year. It is a typical or common practice in domestic employment to provide some recognition to the nanny or housekeeper at the end of the year to acknowledge a job well done.

Q. Does my nanny expect a bonus? If so, how big should the bonus be?

A. Holiday or year end bonuses are OPTIONAL - approximately half of our clients report paying end of year bonuses. So, where as your nanny might appreciate a bonus, unless it has been your practice to give one in the past she is not likely to EXPECT it. Bonus amounts are 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. My husband and I have not had raises in two years, and we went ahead and gave our nanny a salary increase on her employment anniversary date. We would like to give a bonus, but it cannot be as generous as last year. Is this a problem?

A. Your nanny hears the news and knows that economic conditions are not fabulous 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. In the eyes of 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 wage 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.

2011 Nanny Tax Wage Base Unchanged

noreply@blogger.com (Kathleen Webb) — Mon, 01 Nov 2010 14:27:00 Z

The wage threshold that obligates a household employer to report household employment wages and remit Social Security and Medicare taxes on their nannies, housekeepers, elder caregivers, and other household worker will remain at $1700 for 2011. This amount is unchanged in 2009, 2010 and 2011.

A household employer who pays their nanny or other domestic $1700 or more in the calendar year is obligated to issue the nanny a W-2 in January, report the wages paid and remit the Social Security and Medicare taxes using Form 1040 Schedule H. Additionally if the employer pays $1000 or more in any calendar quarter to household workers, the employer is responsible to pay Federal Unemployment taxes (FUTA) and make reports and payments into their state's unemployment system.

Household employers interested in learning more about their Nanny Tax obligations, the process, and the various rules and recordkeeping requirements are invited to download our free e-Book.

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

Nanny Minimum Wage Changes Pending

noreply@blogger.com (Kathleen Webb) — Thu, 28 Oct 2010 19:39:00 Z

There will be numerous changes to the minimum hourly wage rate that applies to nanny wages effective January 1, 2011.

Arizona: $ 7.35
Montana: $7.35
Ohio $7.40
Oregon $8.50
Vermont: $8.15
Washington State: $8.67

Several other states with annual minimum wage indexing will not be making any changes in 2011 as the inflation indexes that trigger these changes are essentially unchanged year over year.

Nanny employers are advised that all hourly wages for nanny or household employment must at a minimum meet the greater of either the Federal or their state's minimum wage.

Meg Whitman and the Illegal Alien Maid - What Could Have Been Done Differently?

noreply@blogger.com (Kathleen Webb) — Wed, 06 Oct 2010 13:41:00 Z

The political media is a buzz with the story of Nicky Diaz, a part time housekeeper employed by Meg Whitman and her husband for 9 years who is an illegal alien without US work authorization.

Ms. Whitman denies any wrong doing, asserting that Ms. Diaz presented a CA Drivers License and Social Security Card, completed the Federally required I-9 form, and asserted in the employment application that she was legal to work in the United States. The application and supporting copies of the Social Security Card and drivers license are available online. Further, Ms. Whitman engaged a reputable household staffing company to do all screening, reference checking, and background checking on employees presented to Whitman for interview.

So what went wrong? How could this have been avoided?

1. The employee, Nicky Diaz, presented documents that appear to be valid, but were either forgeries or illegally obtained (perhaps from a CA DMV employee per some press reports). Employers are entitled to rely on apparently genuine documents for I-9 employment verification purposes.

2. The reputable household staffing agency apparently failed to perform a pre-employment background check. A professional background check would have included an SSN trace, and the discrepancy between the SSN and the name would have been known at time of hire and presumably investigated further then. HomeWork Solutions refers clients who hire household workers directly (without an employment agency) to obtain background screening reports via 4nannies.com.

3. Several years after Whitman hired Diaz, Whitman and her husband received a Social Security notification known as a "No Match" letter. It advises that the name and SSN on a W-2 form issued to Nicky Diaz did not match SSA records. This is a common inquiry, and employers may not terminate employment based on the notification alone; instead, they are required to complete a form to resolve a discrepancy. These letters are very common when employee have Latin names. In documents, Diaz is referred to as Nicandra Diaz, Nicandra Santillan, and Nicandra Diaz de Santillan. Concievably her record could have been filed under Diaz, Santillan, or de Santillan.

Today, there is an additional verification, e-Verify, that is available to household employers to verify the employment eligibility of any newly hired household worker. e-Verify is a service of the Department of Homeland Security. The verification request must be made at time of hire. HomeWork Solutions has offered this service to its clients since 2008.

Additional Resources:

International Nanny Association Recommended Practices for Background Screening
Background Checks Article by APNA Member Lynn Peterson, PFC Information Services Inc.
4nannies.com FAQ About Background Checks
4nannytaxes.com Frequently Asked Questions About the Nanny Tax