Thursday, March 3, 2016

Thrifty Thinking: Tax Tips for Household Services

There is often more in hiring someone to help with work around the home than simply paying on time. A recent Care.com HomePay poll found only 47 percent of families reported the household wages on home help, such as babysitters, dog walkers and yard workers.  Many families are simply unaware of these so-called “nanny tax” rules or the generous breaks that may be applicable each year for families. Additionally, in a recent Care.com survey when asked the most difficult part of paying “nanny taxes,” the number one response was “understanding the difficulties of the various employer/employee taxes.” 
 
To help families navigate potential tax breaks and avoid simple but costly penalties this season, Kerri Swope, a household tax expert with Care.com HomePay, shares and helpful ways to keep household taxes from becoming a headache including:
 
Family Tax Breaks
Two potential tax breaks for families include:
  • Flexible Spending Account: Potentially $2,000-$2,300 in annual savings
  • Child Care Tax Credit: Savings of $600 for one child and $1,200 for two or more
 
  
Common Mistakes
According to the IRS, if a family paid more than $1,900 (which increased to $2,000 for 2016) to their nanny, housekeeper, babysitter, etc. within the 2015 calendar year, that worker should be considered an employee of the family who hired them. Therefore, the family is considered a household employer and is required to pay taxes accordingly - better known as the “nanny tax.” The most common mistakes families make with household employees are often unintentionally simple ones, but they can cost thousands of dollars in penalties and other liabilities.
Some of those include:
  • Forgetting to file nanny taxes on a timely basis
  • Filing a household employee as an independent contractor vs. an actual employee
  • Disregarding overtime
  • Failing to provide worker’s compensation insurance
  • Overlooking any local or state Domestic Worker Bill of Rights
For more helpful information on nanny taxes and useful family budgeting tools, visit www.myhomepay.com

1 comment:

  1. I'm glad I don't have a nanny. Thanks for sharing these tips! Have a great weekend.

    ReplyDelete