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
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