Household Employees & The Nanny Tax - YouTube

Hi, Mark Kohler here with another tax and legal tip let's talk about the household employee and nanny tax now

They're one and the same, and if you have someone working in your home

For more than $2,000 a year which is an average of 166 dollars a month

This tax may apply to you and the IRS is up in their games, so let's talk about it number one

Let's find out if this person even is classified as a household employee now a nanny

By default is a household employee. This could be your gardener your maid your Butler anybody

That's coming to your house and again working under your direction

for more than $2,000 a year or

166 dollars a month now

There's three classifications. We need to worry about here to see if they fall under this tax the first one. That's exempt

let's give you the good news first if this person is a

Spouse that your pain to help take care of your family members or your house

Then obviously you don't have to withhold the tax if they're a child of yours under age 21

They're a parent of yours helping out and you're paying them, or if they are a third party under age 18

So if you're hiring that little teenage girl to come by the house or the teenage boy to work on your garden

And they're under age 18 in any of those four instances this tax does not apply second

Type is the independent contractor

Which also allows you would get out of jail free card so this person qualifies as an independent business owner

You don't have to withhold this tax or be subject to the quote/unquote nanny, or household employee tax now

We independent contractor is going to be someone that has

Multiple customers or clients they're going to come to your house with typically their own equipment

And you may would generally be paying a service

You know you're paying a landscape company, or you're paying a nanny service or a maid company

You could have a different person show for your house each week, but they're obviously an a third-party contractor that services multiple people

That's it you're out of the woods

That is not a household employee

But anything else is gonna fall into that third classification of a household employee someone that's under your direction

That come to your house

They do what you say, and you kind of control their time, and they don't work for anyone else now

We got issues second issue let's talk paperwork if you are gonna have someone work in your home

That's a household employer or contractor

there's two major forms you want to be aware of that's the w-4 or the w9 a

W-4 is what you're gonna get from someone

That's gonna

be acting as an employee if you're saying you're gonna be paying this nanny tax so pay attention to the rest of the video a

w-9 is someone that is acting like a contractor and you want to get that w9 so that you know that they're

Independent and what's their tax ID number you're gonna want to use this for potentially the child care tax credit, which comes later

But you want to get a w-4 if they're probably an employee or a w-9 if they look like a contractor now

There's another third important form that's the i-9 that makes sure they're not an illegal immigrant, and you want to make sure that they are

Honest and legal to live and work in the u.s.

That's the i-9 make sure you get it, so you don't get into the immigration problems third issue

Let's talk about how much this tax is so you don't get too nervous about it, but it's not cheap either

there's really three pieces the first one is the FICA the employment taxes, it's

15.3% which you may pay entirely on behalf of your household employee, or you might do some withholding and then match it

So it's 7.65 of withholding and then you match 7.65 and you get to 15.3%

now most people that they're gonna pay a nanny or a household worker a

Landscaper you pay them $1,000 cash then at the end of the year you have to report this fifteen point three percent tax on

Schedule H. That's where you're gonna pay it at the end of the year on your tax return

You just keep track on how much you're paying them and at the end of the year you fill out

Schedule age form but hold on it does not end there. There's a food attacks

Which is six percent on the first seven thousand of wages now? That's also reported on Schedule H

That could be around four hundred dollars if you're paying them seven thousand dollars or more throughout the year

And then third you've got to worry about the state exposure

Do you need to withhold sudha state unemployment tax or even carry workers comp so if they get hurt on your property?

You've got insurance coverage

Ah, I know there's a lot here, so you want to consult with your tax professional and say hey

I'm gonna have this person working in my house. I'm paying them two to four or five hundred dollars a month or more

Definitely over the $2,000 limit what taxes should I worry about so I know this is a short video

But I just want to expose you to these taxes, and what it could be you got to prepare for fourth issue

Can you get any benefit on your tax return with this well a little it's called the child care tax credit

So if you pay someone to take care of your children and your children are under age 13

and there's a bunch of other rules you want to look at publication 503 and

You might qualify the big kicker there here, though is the credit which could be a maximum of

$2,100 phases out once you make forty-three thousand dollars or more so

Most of you that can afford child care, or have a nanny

Or have a landscaper you're gonna be making too much money to get any sort of credit, and by the way the landscaper doesn't auto

Qualify for a child care tax credit, so you're not gonna get any tax deduction for any of this

Landscaping or Butler services. It's just the childcare again. If you make too much phase out. Sorry finally

This is a very very important issue and you've got to deal with it

This isn't just because you might run for office someday

And you're gonna get grilled on your tax returns in those household. Employees. This could end up in an audit for you

There's stories all the time of these people you're paying to be your mani or your landscaper or whatever

and then they go on to file for unemployment after you fire them or they go to college and apply for a grant or a

School aid and put you down as their employer or they get hurt

They want to file their tax return and get it earned income credit

And they ask you where's their w-2 all of this could alert a state or federal

Agency to what you were doing, and then you get a nasty letter in the mail be careful

just deal with it now the best form to be aware of is the

Schedule H form on your federal return at the end of the year talk to your tax professional I know what your federal or state

exposure is sorry, but

To live in this amazing country we got to pay a few taxes. Good luck. You can see on the backside

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