Eight Reasons why Catching up on the Nanny tax is Good for you.
It's common for household employers to pay nannies, housekeepers and caregivers under the table. Even if paid under the table, employees can file for unemployment, triggering the state and IRS to contact the employers. Many families have been asking us to help them file and pay retroactive or back taxes for wages they paid under the table. Most household employers want to do the right thing but were unaware of the tax and legal requirements as a household employer. Employees often don’t know either, and it’s 100% on the employer anyway.
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.
eight reasons why paying your nanny legally is good for you:
You'll stay legally compliant and will have the documentation to prove it. Any employee, whether paid legally or not, can make a claim for unemployment.
You may be eligible for a tax credit with the Dependent Care tax Credit through the IRS if you hired a nanny/caregiver so you (or you and your spouse) can work.
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.
You elected to use a pre-tax FSA (Financial Spending Account) for dependent care through your company.
Your employee needs verifiable income for basics like applying for a loan or renting an apartment.
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.
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.
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 for each year you need.*
How much work will filing nanny or household payroll taxes involve? Not much if you have us handle it.
WHAT WE’LL COMPLETE FOR YOU:
We will calculate and communicate to you the summary of taxes owed to the IRS and your state, for you to approve.
We will setup your federal and state tax accounts.
Your employee(s) will receive a W-2 for the tax years needed (hooray!).
You, the employer, will receive a Schedule H for your 1040 personal taxes.
We will file the W-2 and your employer W-3 with the Social Security Administration.
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.
We will facilitate your federal tax payment to the IRS for any taxes due.
We will file any new hire reports to your state as needed.
WHAT WE NEED FROM YOU TO GET THIS DONE:
We are a mobile app and only available on the Apple iPhone or iPad. Sign Up here first on our website. We’re the most affordable full-service solution, simply priced at $39/month.
Download the app and sign-in. Onboarding takes 5 minutes.
When you add your employee to Nest Payroll, enter the accurate start date of your employee. If the start date precedes the current quarter, you will be asked if you need catch-up. Turn the catch-up option green and you will be able to share the following data:
Total wages paid in each tax year before using Nest Payroll
Total hours worked
Total overtime hours worked
Paid vacation hours
Paid sick hours
That’s it. We’ll take care of you and your employees. And your future household payroll will be really easy.
*CATCH-UP PRICING:
Ongoing Subscribers: We charge $39/month per employee for previous wages, beginning with your employee’s correct start date and subject to a 3-month minimum. When you onboard your employee into the app, enter the correct start date and you’ll be prompted in a later step to enter the wages you paid before Nest Payroll.