During this stressful time, millions of employees in the U.S. are filing for unemployment, whether they were paid legally or not. COVID-19 has been a wake-up call particularly for household employers because it's common to pay nannies, housekeepers and caregivers under the table. Many people have been contacting us to help them figure out how to pay back taxes for wages paid under the table. They were overwhelmed with how to figure it out and they let it go or they assumed their employee was an independent contractor.

Even though it’s called the nanny tax, it is for any household employee, like your housekeeper, caregiver or personal assistant. It doesn’t matter if your employee works for other families or is part-time.

It’s never too late to pay legally.

Nine reasons why this is good for you:

  1. You'll stay legally compliant and will have the documentation to prove it.

  2. You are required to follow the COVID-19 Families First Coronavirus Response Act. This bill mandates paid sick leave and paid family leave. Employers can get a 100% reimbursement through a refundable tax credit. Any employee, whether paid legally or not, can make a claim for unemployment. The IRS will enforce this and you want to avoid being penalized and losing this tax credit refund. See how Nest Payroll will help you with the FFCRA.

  3. COVID-19 is a life event trigger for re-opening enrollment on many U.S. health insurance exchanges. Uninsured employees who have verifiable income could qualify.

  4. You can get a tax break if you hired a nanny/caregiver so you (or you and your spouse) can work, which can greatly offset your employer taxes. The Dependent Care FSA tax break usually is limited to enrollment once during the year, however COVID-19 has re-opened enrollment for this benefit. Enroll now if your company has this!

  5. You are an attorney, doctor, government employee, high-level employee or licensed to work in the regulated finance industry, and it’s critical you stay above board for your career.

  6. You elected to use a pre-tax FSA (Financial Spending Account) for dependent care through your company, and the only way to get the tax savings is to pay the employment taxes.

  7. Your employee needs verifiable income for basics like applying for a loan or renting an apartment.

  8. Your employee needs the safety nets that come with paying taxes: Unemployment, Social Security and Medicare, and in some states disability and paid family leave.

  9. You can contribute to your employee’s health insurance premium as a tax-free boost to your employee's wages, which helps both of you save money (Nest Payroll makes this easy). Typical employer contributions we're seeing range from $50 to $200 each month.

  10. Bonus reason: It's the ethical thing to do and you'll sleep better.

What Are the Expected Tax Costs?

Employer payroll taxes normally range between 9%-11% of wages, depending on your state (if you hired a nanny or caregiver so you can work, you'll offset those taxes quite a bit). When you catch-up with a previous year, it will be higher, roughly 17%, because the employer pays both employer + employee social security and Medicare and both sides of state taxes too (where applicable).

Employees will also need to pay income tax on their wages. While we only handle the payroll, we know on the other end that many household employees owe little if they qualify for tax credits like the earned income tax credit (EITC), child tax credit and others. While every situation is different, household employees often get a refund while they build up their social security and Medicare credits. If the employee has already filed their taxes this year, it’s easy to file an amendment so they can get the benefits that come with the new W-2.

What about penalties? The IRS will give you a break if this is the first year you owe taxes on a household employee. Just make sure you pay the taxes by the time you file your personal taxes. However, your state might assess a late penalty for not paying on time. We have seen penalties range from $150/quarter to as little as $15/quarter, depending on your state.

We’ll catch you up on your household payroll at no additional cost.*

How much work will filing nanny or household payroll taxes involve? None, if you let us handle it.

WHAT WE’LL COMPLETE FOR YOU:

  1. We will calculate and communicate to you the summary of taxes owed to the IRS and your state, for you to approve.

  2. We will setup your federal and state tax accounts.

  3. Your employee(s) will receive a W-2 for the tax years needed (hooray!).

  4. You, the employer, will receive a Schedule H for your 1040 personal taxes.

  5. We will file the W-2 and your employer W-3 with the Social Security Administration.

  6. We will file and facilitate payment for any taxes owed to your state. States often assess late penalties, we’ll make sure that gets paid so you’re in the clear.

  7. We will facilitate your federal tax payment to the IRS for any taxes due.

  8. We will file any new hire reports to your state as needed.

WHAT WE NEED FROM YOU TO GET THIS DONE:

  1. We are mobile only. You will need an iPhone or iPad.

  2. Download Nest Payroll on the App Store OR Sign Up here first. Onboarding takes 5 minutes. We’re the most affordable full-service solution, simply priced at $39/month.

  3. Email or text us right from the app (under “Support”) the following:

    • Start date of your employee, total wages paid in 2020 / 2021 so far, and any previous years if needed. If there were overtime hours, let us know.

    • Enter your employee into the app, including their W-4 details

That’s it. We’ll take care of you and your employees. And your 2021 household payroll will be really easy.

*We will simply start your subscription from the month your employee began working as if you had been subscribed to Nest Payroll all along, subject to a 3-month minimum charge and an ongoing subscription. If there’s no need for an ongoing subscription, we have a 12-month minimum. If you have more than one employee to catch-up, we’ll charge an additional $156/employee.