There have certainly been many times during my career when I have had people ask me about the “nanny tax.” Those people (not surprisingly) usually have nannies, and are aware that there are some tax responsibilities that come along with employing that person.
There have certainly been at least as many times in my career, though, when someone should have been asking me about this “nanny tax,” and were not. Those people (not surprisingly) did not have nannies, and were not aware of the responsibilities that come with having a household employee. Many of them, in fact, were not even aware that they technically had a household employee.
Although nannies are the occupation that have somehow been chosen to name and symbolize this issue, it essentially applies to anyone who works in your home to whom you pay more than $2,000 a year. Cooks, housekeepers, medical care givers, gardeners, and heck, even babysitters who don’t get the nanny tag could all fit under this umbrella.
So if you are reading this and realizing that there may be some legal and tax issues that you have not been properly addressing, please don’t hesitate to contact us and we can help make sure that you are meeting your obligations.
I wanted to spend a little more time here keying on the medical worker aspect of this, however. Many people who receive in-home care arrange it through a third party, meaning the caregiver is receiving their wages through an employer who is not the homeowner of where they work. If that is the case, there is no need to worry, for they already have an employer taking care of obligations on that end.
When a homeowner personally brings in someone, however, then they become the employer and as such have the tax obligations of any employer. Some believe that with the current, possibly in-flux state of medical insurance in our country that this could be a situation that grows in the coming years.
This may actually be the type of situation where it is most critical that one is aware of the “nanny tax,” even though these clearly are not nannies, and of other rules that could help ease one’s tax burden.
For example, a worker could qualify for a companionship exemption based on the type of care they provide, leading to possible exclusions from minimum wage and overtime rules. There are also sleep time exemptions for those who work certain extended hours if adequate sleeping facilities are provided, continuous sleep for at least five hours is possible, and the employee agrees to it in writing, so that those hours don’t count as working hours.
I realize that all of this may seem very vague, and that is by design. I do not feel that this is the space to give any sort of specific instructions, recommendations, or advice, however, for so much of that is dependent on one’s personal situation. Instead, I just wanted to make you aware that such rules do exist and it is better to take care of them now than waiting for them to catch up with you.
And of course, as always, we would love the chance to help you figure out just how it applies in your personal situation.
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.