What's the tax implication of hiring a nanny independently?

[Zeze]

Hello. My uncle's family have an under-the-table nanny that they pay $12/hr for 32hrs a week. This under-the-table wasn't made clear to nanny since they stupidly assumed that's how everyone does it.

So the nanny became preggo and she gave us this form for her to apply for medicaid.

1. What kind of taxes do they have to pay if she wasn't under the table?

2. What other liabilities does this come with? If she files for unemployment, they pay for that obviously right? Does this mean we now have to get unemployment insurance too?

3. What's the exact tax implication on their end- can you help me find end-all link that contains such info?

I say they just tell her she was under the table all along.

 

[nakedfrog]

She wasn't wondering about her W2/W4 prior to this?

 

[s0me0nesmind1]

Should have made shit like this clear to begin with if you were doing it under the table. I don't know the implications other than typically when you have a nanny in your home you are liable for properly reporting SS/Medicaid and collecting income tax on their behalf (presuming it is a significant amount of pay and that they are not a family member). How long have they been utilizing her? 5 years? 1 Year? 2 months?

Personally I would kick her to the curb, things such as being "under the table' are usually pretty clear from the start.\

Also, a lot of implications (such as insurances, etc...) are at the state level, so YMMV.

 

[Paladin3]

https://www.cnbc.com/id/100579328

Nice article on what the IRS can do to you for not paying your "nanny tax." Not only was your uncle responsible for withholding for taxes from her paycheck, he was responsible for making employer contributions as well. Now he has to pay back taxes and penalties if he wants to start paying her legit, unless she is willing to cooperate and act like she is a new employee. Of course, that does nothing to help with her current situation since she is expecting medicaid coverage that he hasn't been paying for.

Good luck. I hope it's not his kid, and if he was getting some on the side he's gonna pay for it now.

 

[s0me0nesmind1]

https://www.cnbc.com/id/100579328

Nice article on what the IRS can do to you for not paying your "nanny ""tax."

Let me clarify a couple things here, because there is definitely SOME misinformation here

Under current law, any family or individual who employs someone they pay more than $1,800 a year is considered an employer in the eyes of the Internal Revenue Service and is required to pay taxes for that employee.

$1,800 has since been changed to $2,000 - and there are also exceptions to this rule, one of the main ones being if it within family (e.g. Grandmother is the nanny). Another exception is if the nanny (or daycare rather) duties are being performed at the nanny's home (and not your home).

That sweet old lady across the street whom you pay $50 a week to pick up your child from the school bus stop and watch them for an hour until you get home from work? She counts ($2,600 annually). So does that gardener you pay $25/hour for three hours of work three times a month ($2,025 over nine months) to make sure your lawn stays well-manicured.

Wrong. You are responsible for withholding taxes when you are an employer. So when I hire someone to come do my lawn service, he...
1) Uses his own equipment, which I have no say or authority of what is used or how it's used
2) He comes on his own time - and this is key. When you are able to come and perform the work on your own basis (morning, day, night, today, tomorrow) - you're an independent contractor, no question. Obviously that's not the case for a nanny that you have a schedule with though.

 

[BoomerD]

yep...depending on how long she's worked for them, your uncle could get fucked pretty hard by this.

By "Medicaid," do you mean welfare medical from the state?

Does your state have income tax? if so, not only will your uncle be in trouble with the IRS, but probably with the state as well.

Telling her "sorry, you're an under the table employee" won't work...that's not a legal job description...

https://www.irs.gov/publications/p926

 

[s0me0nesmind1]

yep...depending on how long she's worked for them, your uncle could get fucked pretty hard by this.

By "Medicaid," do you mean welfare medical from the state?

Curious on this as well - what does an employer have to do with state medical welfare benefits?

 

[BoomerD]

Curious on this as well - what does an employer have to do with state medical welfare benefits?

Maybe they're trying to confirm her employment status, annual income or eligibility for the medical?

 

[dave_the_nerd]

Curious on this as well - what does an employer have to do with state medical welfare benefits?

Employers and employees pay a tax (based on wages, IIRC) to fund them. There should be a medicare/medicaid deduction on your pay stub, along with ones for Social Security and one for Federal Income Tax. (Plus others, depending where you live.)

Where did you think the money for those welfare benefits came from? :headscratch: :dog_headtilt:

Maybe they're trying to confirm her employment status, annual income or eligibility for the medical?

That.

Anyway, IIRC, he doesn't have to do all that - he should be able to pay her w/ a 1099 and avoid all that stuff. But then the nanny has to file for self-employment taxes, which are higher. So either way his costs are going up.

 

[BoomerD]

Employers and employees pay a tax (based on wages, IIRC) to fund them. There should be a medicare/medicaid deduction on your pay stub, along with ones for Social Security and one for Federal Income Tax. (Plus others, depending where you live.)

Where did you think the money for those welfare benefits came from? :headscratch: :dog_headtilt:



That.

Anyway, IIRC, he doesn't have to do all that - he should be able to pay her w/ a 1099 and avoid all that stuff. But then the nanny has to file for self-employment taxes, which are higher. So either way his costs are going up.

Nope...you can't 1099 a nanny. They're (nearly) always classified as household employees, not independent contractors.

 

[s0me0nesmind1]

Employers and employees pay a tax (based on wages, IIRC) to fund them. There should be a medicare/medicaid deduction on your pay stub, along with ones for Social Security and one for Federal Income Tax. (Plus others, depending where you live.)

Where did you think the money for those welfare benefits came from? :headscratch: :dog_headtilt:

We do have income taxes (that I am well aware of) which is known as FICA - comprised of: a 6.2 percent Social Security tax and a 1.45 percent Medicare tax. No where in my pay stubs (or my obvious tax knowledge) has there been anything mentioned in regards to medicaid tax. I am, however, not someone that employs so I'm not the most knowledgeable on the subject - but a quick google seems to indicate that I am correct... Nothing about employing someone mentions medicaid taxes.

That.

Anyway, IIRC, he doesn't have to do all that - he should be able to pay her w/ a 1099 and avoid all that stuff. But then the nanny has to file for self-employment taxes, which are higher. So either way his costs are going up.

Absolutely incorrect x1000. Just googling 'Nanny Tax' will tell you that. A nanny is not an independent contractor. She doesn't get to decide what time she works, the number of hours she works, etc...

The only exception to this is if she runs the daycare out of her home. Then the situation reverses, and you are essentially bringing your child to her employment.

Nope...you can't 1099 a nanny. They're (nearly) always classified as household employees, not independent contractors.

Bingo

 

[dave_the_nerd]

Nope...you can't 1099 a nanny. They're (nearly) always classified as household employees, not independent contractors.

Huh. TIL.

 

[GoodRevrnd]

I remember when my parents were trying to hire a caretaker for my grandfather they tried to do things the right way and it was pretty much impossible to find someone that would agree to not be paid under the table. This doesn't help OP, but interesting perspective on the caretaker economy.