Take ‘Care’ of Your Nanny’s Taxes
How to properly file your household employer taxes
The New Year is here, and many families are settling down from the holiday rush. But for the millions of families that hired a nanny, babysitter or other childcare professional to work in their home last year, there’s still work to do before they can say goodbye to 2014. That’s because the IRS considers any family that paid $1,800 or more in 2013 (updating to $1,900 in 2014) to one of these employees to be a household employer with tax responsibilities similar to many businesses.
Here are the five things families should do between now and the April 15 tax filing deadline to make sure their taxes—and their employee’s taxes—are properly taken care of:
1. By January 15, send your fourth estimated tax payment to the IRS.
You will use IRS Form 1040-ES to send the Social Security, Medicare and federal income taxes you withheld from your employee during the months of September, October, November and December as well as pay the Social Security, Medicare and federal unemployment insurance taxes you owe as a household employer.
Families are allowed to include this 1040-ES payment with their personal income tax return. However, there is a risk the family could be assessed an underpayment penalty due to the IRS’s safe harbor rules.
2. File your state tax returns by January 31.
All families must file their state unemployment insurance taxes, and most will also file state income tax returns (if they live in a state with income taxes). However, the frequency the family has to file and the deadline may not be the same for all families. Generally, state unemployment insurance and state income tax returns are filed quarterly and due by the last day of the month following quarter close. That means most families will need to file their fourth quarter state tax returns no later than January 31, 2015. To check the requirements in your state, please click here.
If you live in a state with income taxes, you may also be required to file an annual reconciliation form. The form simply summarizes the state income taxes you withheld from your employee during 2014.
3. Prepare and send your employee a W-2 by January 31.
You have the option of mailing the W-2 or giving her the form in person, but she’ll need it to file her personal income tax return. The W-2 lists the wages she earned from you and the taxes you withheld from her pay throughout the year.
4. Send Form W-2 Copy A and Form W-3 to the Social Security Administration by February 28.
These forms list the same information as the W-2 form you provide your employee. The Social Security Administration uses these forms to give her credit toward her eventual Social Security income and Medicare during her retirement years.
Families that file their W-2 Copy A electronically have an extended deadline of March 31 and do not have to file a W-3.
5. Attach a Schedule H to your personal income tax return.
A Schedule H is used to summarize the Social Security, Medicare, federal unemployment insurance and federal income taxes sent to the IRS throughout the year. The total household employment taxes you paid for 2014 should be entered on line 59a on your personal income tax return.
It may seem overwhelming at first, but the reality is it’s not as daunting as you think. With these items checked off your list, you’ve completed all your household employer tax responsibilities for 2014 and can start off the New Year on the right financial foot!