A household worker would be a worker you hired and not a worker temp service that you pay, as in the service delivers the nanny and the service issues the nanny with the W2 and takes care of the payroll aspect for you. This situation speaks of when you independently hire a household worker.
What typically happens is that a nanny or other household worker will receive payment “under the table” and does not report the wages earned on their income taxes as they receive no W2.
In the nanny case, once the wages go unreported, the government authorities may not collect the taxes, the parents lose out on any dependent care tax credits, and the worker will not collect any social security or medicare benefits for the services performed.
The right way to handle this situation is to do the following:
1) Register as a household employer with the IRS and the state to receive an IRS household employer tax identification number and an employer registration number with the state. Gather all pertinent documentation from your employee as you would with any other employee.
Documents like proof of identification, payroll withholding forms, and voided checks would all be examples of documents to gather and retain on the employee file.
2) Use a payroll processor specializing in household employment to process the regular pay so that a W2 is issued at yearend and the payroll tax forms are filed with the state tax authority ONLY.
3) Remit the federal employee income and payroll taxes and the employer payroll taxes along with your federal estimated income taxes quarterly or as frequently as you wish via the EFTPS site.
4) File Schedule H with your annual personal income tax return.
5) Claim any dependent care tax credits if they apply to your situation. If your worker is a home health aid, consider reflecting the medical costs (and payroll taxes) as a deduction on IRS Schedule A as a medical itemized deduction.
As always, speak with your tax professional to ensure that the situation you are facing is described above and to ensure that you are in full compliance with labor and tax laws.
“You must pay taxes. But there’s no law that says you gotta leave a tip.”
~ Morgan Stanley advertisement
To catch up to part three, see parts 1 and 2 on how to succeed in any business.
“Those who cannot learn from history are doomed to repeat it.”
~ George Santayana
As promised, we are back, and talking about your favorite subject – how to succeed in any business from a financial perspective. No one said this would be easy, but believe me, a bit of work, some discipline, and you will have financially less stress to deal with in your business.
Here are some more suggestions for what you should put into the works in your business, as of yesterday. If you are not doing the following in your business, you are probably not going to meet your true potential and are doing yourself a disservice.
We all must suffer one of two things: the pain of discipline or the pain of regret and disappointment. What we must understand however is that regret and disappointment hurt far worse than discipline.
~ Jim Rohn
This is a tale of two barbers, one on our corner and one across the street. Both know their craft and do a magnificent job in cutting hair. One has been in business for many years, and the other opened shop more recently, but has also been in business for quite some time.
Great works are performed not by strength but by perseverance.
~ Samuel Johnson
This week we complete our series on the value-added tax planning services which are perfectly suited to do during the off-season months.
Fearlessness is the gateway to success. One should therefore shun all kinds of fear.
~ Rig Veda
Last time we covered a general list of activities your tax specialist does year round, and we promised you more detailed information on items that may be of interest to you. As always, please don’t hesitate to speak with us if you have any questions about your specific individual or business tax situation.
Now that the dreaded tax season is behind us, and the tax returns have been filed, most of us will try to avoid a visit to the CPA’s office. And what does happen during the tax superman”off” months? Does your accountant put away the calculator and head to the beach? The summertime is almost here, and we are ready to help you with off-season work.