By now you most likely have seen tax documents starting to show up in your mailbox. It’s the time of year when they are unavoidable. Some look like good news, some look like bad news, but few come as surprises. Some people are surprised to find, though, that they themselves should have provided some tax forms to others.
This most often comes in the form of what is colloquially known as the “nanny tax.” It’s easy to see where the name comes from, since a nanny is someone a family provides a decent amount of money to over a year. The tax, however, covers anyone who could be seen as a household employee, be it a caregiver, housekeeper, etc.
The tax essentially comes down to the fact that if you paid a household employee more than $2,100 in the year, they owe 7.65% in Social Security and Medicare taxes on those wages. That seems like a decent chunk of money when you think of it on the whole. But this only breaks down to about $40 a week. That means it can even be reached by handing a babysitter some money after a weekly date with your spouse.
(Not that I’m going to tell you to go back and try to track down how much you paid the babysitter every week, but it is enlightening as to how easy this threshold could be to reach.)
Beyond what a household employee can personally owe, if you pay one of these employees more than $1,000 in any calendar quarter, you’re liable for paying federal and state unemployment taxes.
Granted, we aren’t talking about huge numbers here, but if this is something you were not aware of and you want to make sure that you are handling it correctly and legally going forward, contact us and we will work out a plan to make sure you have everything in order.
Keeping things in order is something to keep in mind all over the place when it comes to this time of year and those tax forms that you are starting to receive. The more you think now about getting stuff together, the less hectic the tax return process will feel.
A good starting point is knowing that whatever you needed to file last year’s return is going to be needed again. To move beyond that starting point, though, work by the mantra that you can never provide too much information.
If you come to your tax return appointment and bring some information, receipts, etc., that you aren’t sure if they’ll be applicable to your return or count as a deduction, the worst thing that can happen is you are told no. But it’s possible you find one or two that do count and then the little time it took to include that in your folder of forms will be worth it.
Then next year you’ll have an even better point at which to start from. Time is on your side for now, so get on these things and do not be afraid to make an early appointment to handle your return.
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To ensure we don't make the folks at the IRS ornery, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.