DIY: Do you have a nanny or babysitter? They might be considered a household employee for tax purposes and you might be responsible for paying employment taxes.

 

https://www.irs.gov/publications/p926

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A client of mine recently had a baby.  Yay, Baby!!  With that bundle of joy comes additional tax responsibilities and implications… and sometimes credits and deductions.

 

She had two questions.  What is the nanny tax? And Is it simple to do it yourself or should you pay a professional payroll company? (Ultimately, my client decided to try it out herself before she hires a payroll service.  As with any business there are initial startup costs and then monthly bookkeeping and filings. Sometimes certain forms can be filed on a quarterly or annual basis. Record keeping and organization is imperative for “keeping the books” long term.)

 

 

Many years ago, nanny’s and day care providers were simply considered self employed and filed their income and expenses on the Schedule C (attached to the 1040). The family would pay cash or check and the nanny or sitter would account for it on their own returns.   However, now, the tax law states that if nanny’s are paid more than $2,000 a year they are considered employees and are subject to all of the regular employment taxes, unemployment insurance and workman’s comp. Thus creating additional paperwork and costs.

 

What is the nanny tax? And is it easy to DIY

This weird sounding tax is actually just basic employment and payroll taxes.  All employees and/or employers are required to pay social security taxes, Medicare taxes, and sometimes unemployment insurance.  The “employers” may or may not withhold and pay federal /state too.  You’ll save quite a bit of money doing it yourself and its not that difficult.  Although, it is work in a sense and it takes a bit of time.

Requirements:

  1. Be able to read and follow directions. Have some patience.
  2. Be organized: calculate hours worked, gross income and net income.
  3. Be tech savvy. Most of this stuff can be done online. It’s also handy to have a scanner/copier/ printer handy but it’s not required necessarily.
  4. Be able to follow due dates and pay on time (or you’ll be subject to fees and penalties).  Ex: for unemployment insurance,  you usually calculate January thru March and the money is due in April.

 

 

Startup

Go to irs.gov and search for form SS-4 (fss4), Employers federal ID number.  Fill it in and apply online, or download the pdf to a computer and fill it out by hand then mail it in. Im sure the agencies hate it, but I still do alot by hand and use my stamps.com account to mail it in.

Go to Colorado.gov/revenueonline and apply for a state wage withholding license (only if withholding state tax for your employee).

 

IRS’s publication 926  instructs household employers of their duties.  I’m going to use a combination of that publication and my own insight and experience to describe the process to do your own bookkeeping and payroll when you have certain employees.

 

The Numbers for Social Security and Medicare tax  Employer W-2 Filing Instructions & Information

The social security tax rate is 6.2% each for the employee and employer, unchanged from 2016. The social security wage base limit is $127,200.  The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2016. There is no wage base limit for Medicare tax. Social security and Medicare taxes apply to the wages of household employees you pay $2,000 or more in cash in 2017.

 

The process *not including responsibilities for withholding federal and state taxes for the employee*

Example. On February 13, 2017, Mary Brown hired Jane A. Oak (who is an unrelated individual over age 18) to care for her child and agreed to pay cash wages of $50 every Friday. Jane worked for the remainder of the year (a total of 46 weeks). Jane didn’t give Mary a Form W-4 to request income tax withholding. The following is the information Mary will need to complete Schedule H, Form W-2, and Form W-3. See the completed examples of Form W-2 and Form W-3 for 2017 at the end of this publication

 

Total cash wages paid to Jane                                      $2,300.00

($50 x 46 weeks)

 

Jane’s share of: Social security tax is $142.60             EE share

($2,300 x 6.2% (0.062))

 

Medicare tax is $33.35                                                     EE share

($2,300 x 1.45% (0.0145))

 

Mary’s share of:Social security tax is $142.60             ER share

($2,300 x 6.2% (0.062))

 

Medicare tax $33.35                                                         ER share

($2,300 x 1.45% (0.0145))

 

Amounts reported on Form W-2 and Form W-3:Annual reconciliation at tax time.  Additionally, the schedule K will be added to the individual 1040 and reconciled that way.  You may or may not be required to pay estimated quarterly tax payments to ensure you don’t owe more than $1000 at the end of the year.  Talk to your tax professional.

Box 1: Wages, tips                          $2,300.00

Box 3: Social security wages        $2,300.00

Box 4: Social security tax withheld $142.60

Box 5: Medicare wages and tips  $2,300.00

Box 6: Medicare tax withheld is     $33.35

 

The  social  security  tax  pays  for  old-age,  survivors,  and disability benefits for workers and their families. The Medicare tax pays for hospital insurance. Both you and your household employee may owe social  security  and  Medicare  taxes.  Your  share  is  7.65% (6.2% for social security tax and 1.45% for Medicare tax) of  the  employee’s  social  security  and  Medicare  wages. Your employee’s share is also 7.65% (6.2% for social security tax and 1.45% for Medicare tax). Continue reading “DIY: Do you have a nanny or babysitter? They might be considered a household employee for tax purposes and you might be responsible for paying employment taxes.”

“Tax time” is creepin. If you stay ready, you don’t have to get ready. Pauline’s Tax Service will be making some changes going forward for next year – Stay informed.

As the next couple of months cruise by there will be more information inserted on to my website to help prepare you for the upcoming tax due date of  April <15-18>, 2018

*There are going to be many changes this year, it seems, due to a new tax plan, although its not confirmed.  I’ll try to keep you updated with that too.

 

Pauline’s Tax Service, Ltd – By Stephanie

 

Over the last 2 or 3 years I have worked tirelessly to ensure the best possible service for this type of duty and for my clients, many of whom I inherited more than 11 years ago from my grandma, Pauline Parris.   This work was important to her, and it is to me too.  With that being said, there will most likely be many changes over the next 2 years as I’m trying to reconstruct and reorganize my business plan. Expansion is in our future.

In-office appointments are going to be limited.  The office address is going to remain the same for mail in’s, drop off’s, pick up’s and meeting’s.  The conference room will be available for those tough situations, but this means that some additional time & planning might be in order.  Documents can be submitted via mail, drop off, e-mail, fax, or uploaded to the client portal.  Limited in-office appointments will be available for 2018. Thanks in advance for any inconvenience. 

 

*Before you would like your returns started – make sure you have all of your documents AND other information included before you send it to Pauline’s Tax Service for preparation.  Some returns that include the earned income credit or 

 

Address:  12365 Huron St., Suite 1800 Westminster Co 80234

Phone:     720-893-3712 ext.105

Fax:          303-252-4664

Email for Stephanie

Secure Client Portal

 

 

2017 Tax Rate Schedules: Have you adjusted your withholding’s? Calculate your estimated taxable income, and find your tax.

2017 Tax Rate Schedule

Around the middle of the year it is a good idea to ensure that by the end of the year you will have withheld your tax liability due. No more, no less.  It’s common to adjust your withholding’s during the year to reflect life events or just to put more money in your pocket at that time.  Time and time again it’s also common that you forget to adjust the withholding’s back to cover your tax liabilities.  Knowing what your tax due will be is half the battle, but equal parts importance to earning your wage and paying your bills. It should be part o2017 Tax Rate Schedulef your monthly budgeting.

 

There’s more to it obviously, but the Individual income tax formula  is as follows and can be used to estimate your taxable income to give you an idea what your up against and  give you time to gather your options to lower your taxable income in an effort to conserve AFTER TAX WEALTH.

 

Individual Income Tax Formula:

Income (broadly conceived) Add income together if you file married filing joint. Don’t forget distributions from 401k’s, retirement or taxable social security, investment income, and  net self-employment income or loss.

Less: Exclusions   Ill go into the list of exclusions later

= Gross Income

Less deductions

= Adjusted Gross Income

Less: [Itemized or standard deduction] and [exemptions] for every person on the tax form

= Taxable Income

 

To find the estimated tax for your bracket add

the tax + [the % over the amount]= Tax