Every December, we get a lot of calls from families who are trying to "clean up" their 2012 tax issues -- and getting their nanny "on the books" is very high on the list of to-do's.  Most families with a household employee know they have some obligations, but they don't really know what to do or when.  It's very common for busy families to decide to "worry about it later." 

However, that procrastination can leave the family and the nanny with more worries.  Most states require employers to file employment tax returns in each quarter in which there were wages paid (some even require monthly deposits).  If they're not filed on time, the state will assess late penalties and interest charges.  Additionally, when taxes aren't handled correctly, the nanny misses out on the important benefits that other professionals get, such as unemployment, social security, medicare and disability.

The good news is, it's not too late.  We can get families caught up in time to take care of Form W-2, Schedule H and the other year-end obligations.  As part of our setup process, we also petition the tax agencies to waive late penalties and we've had very good success getting them waived on behalf of our clients.

While waiting until the end of the year is not ideal (the "nanny tax" compliance tasks start at time of hire), it's easier and cheaper to take of the obligations now than it will be down the road.

If you employed a domestic worker during 2011 and paid $1,700 or more, there are two important "nanny tax" deadlines that are quickly approaching:

Your state requires household employers to file employment tax returns by January 31.  (Your state may also require you to file an Annual Reconciliation as part of the year-end process).

You are required to prepare Form W-2 and distribute it to each employee no later than January 31.  (Important Note: Don't use Form 1099, which is for independent contractors.  The IRS has ruled that domestic workers should be classified as employees and misclassifying your employee as an independent contractor can expose you to felony tax evasion charges and expensive penalties).

If you're a Breedlove client, we have all your obligations covered.  If you're not a client and you want help meeting the state and federal deadlines, just complete our Secure Online Registration and we'll take care of everything. 

We've had a lot of calls in the last two weeks about nanny tax obligations.  Some families are hiring a household employee for 2012, while others are trying to get a Form W-2 and Schedule H prepared for wages paid in 2011.  If you want to learn more about the nanny tax obligations and how our household payroll service works, this nanny tax video will answer most of your questions in 3 minutes.  Or, feel free to give us a call at 1-888-273-3356.

The Internal Revenue Service (IRS) and the Department of Labor (DOL) recently announced a partnership designed to crack down on worker misclassification -- that is, treating workers as independent contractors when they should be treated as employees.  A number of states have joined the enhanced enforcement initiative and others are expected to follow.

The reason?  Money.  Misclassification costs federal and state tax agencies billions of dollars each year in lost tax revenue.

While worker classification can be somewhat ambiguous in some industries, the IRS has ruled definitively on the household employment industry.  Nannies, housekeepers, health aides, personal assistants, estate managers and other domestic workers are all considered employees -- regardless of what they're called in a contract, how much they're paid, or how many hours a week they work.

Misclassifying these employees as independent contractors is considered tax evasion and includes back taxes, penalties and interest.  If you've had a household employee and been illegally giving her a Form 1099, now's the time to re-classify her as an employee and give her a Form W-2.  If you're worried about the cost or the paperwork, don't be; tax breaks make it much cheaper than you think and our service makes it effortless.  For more info, click here to take our brief video tour.

A reminder to families who employed a domestic worker in 2010 (i.e. nanny, housekeeper, personal assistant, health aid, elder care companion, etc.) and paid the worker more than $1,700, Form W-2 Copy A & Form W-3 must be filed with the Social Security Administration by February 28.  (Note: If you are a Breedlove client, we’ve got you covered).

A very common mistake we see this time of year is families preparing and filing Form 1099 (the form used for independent contractors) rather than Form W-2 (the form used for employees).

Here's a simple rhyme to help you remember:

The correct form to file is a W-2

1099 is not fine

For your employee or you. 

For families, this mistake means a potential tax evasion charge and expensive penalties.  For the worker, it means higher taxes.  Please note that the Form W-2 deadline is approaching.  If you employed someone to work in your home (i.e. nanny, housekeeper, health aid, estate manager, personal assistant, etc.), you must mail the Form W-2 by the end of January.  If you have questions or need help, just give us a call.

Note: If you're a Breedlove client, don't worry; we've already sent it to your employee(s) for you.