Help with taxes: nanny/babysitter

nawlinsgrl · March 2014

Last summer we hired a woman to watch DD for about 10 weeks, and she was paid cash. I imagine the total was a few thousand, but definitely more than the $1800 where you are supposed to pay Medicare and SS. I never discussed taxes with her, but the other day she mentioned she will be reporting the income on her taxes. My question is, what is my responsibility in regard to paying my taxes at this point? Will I be held responsible for not having paid for Medicare and SS for her? Am I supposed to report having employed her, even though I have no records of when and how much she was paid? TIA to anyone who knows these answers!

nawlinsgrl · March 2014

So, what do you recommend I do this year? Do I report or not report having employed her? I wasn't planning to, but don't know what to do now. Also, we will be using her again this summer. How should I approach it this time? Continue to pay cash, or pay by check and figure out a way to pay the taxes? This is all so new to me, so I appreciate your advice.

nawlinsgrl · March 2014

Thanks for your feedback. One more question/thought...if she reports it as self-employment income, am I still obligated, or is she the one responsible for these taxes?

ETA: Will she have to provide my contact info when reporting, or just that she made X amount of money? If she doesn't use my name, I assume there is no recourse to come after me.

*sparky* · March 2014

nawlinsgrl said:

Thanks for your feedback. One more question/thought...if she reports it as self-employment income, am I still obligated, or is she the one responsible for these taxes?

ETA: Will she have to provide my contact info when reporting, or just that she made X amount of money? If she doesn't use my name, I assume there is no recourse to come after me.

The IRS considers this to be an employer/employee relationship so she cannot report it as 1099 (contractor) income. You are on the hook for the taxes. Also, she cannot report income from an unnamed source - she has to provide your name and tax ID. If you refuse to supply it, she can mark as such on her tax form, but then that can be a red flag to the IRS to come after you.

If you report the payments to her, there is a tax benefit to you, so it may not be as costly as you think. I would suggest you do things on the up-and-up to avoid getting yourself into trouble.

If you use her again next year, I would suggest handling the taxes as you go, to avoid penalties for both of you.

nawlinsgrl · March 2014

Here's the thing. I didn't know any of this (totally my fault), and I don't have a tax ID. So what happens in that case? Do I have time to get one before April 15th and fix this? I was thinking about asking her not to include the money on this year's taxes (2013), and then for 2014 we can just include everything, once I have a chance to get my ducks in a row, i.e., just report both years' money for 2014. That way we'll pay all the taxes, but I'll have time to do it right.

nawlinsgrl · March 2014

Good news. I spoke with her just now and explained the situation. It appears she too was unaware of the $1800 threshold, and didn't realize the trouble I (and I assume we) could get into if she reports more than that amount.

Since neither of us know the exact amount, but both agree it was close to the $1800, and it is so close to April 15th, with neither of us having filled out any forms, withheld money, etc., we decided it was best to report no more than $1800 this year, and that when she works for us this summer, we can discuss how she would like to proceed moving forward, so I will have time to file for an EIN and withhold FICA appropriately.

I think this puts us both in the clear. If I'm wrong, somebody please let me know!

jess9802 · March 2014

Did the woman watch your child in your home? If so, she was your employee, and you were required to pay her Medicare and SS taxes if her wages exceeded the $1800 limit.

If she watched your child in her home, then she's self-employed and will pay the Medicare and SS taxes herself.

I have a very limited tax practice, and I found the nanny tax rules just ridiculous. My mother watches my son in our house and we pay her. The IRS does not consider her a household employee and I was not required to withhold Medicare and SS from what we pay her. If I got divorced, then she would be considered my household employee and I'd have to withhold...which makes little sense to me, but it is what it is.

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