March 09, 2018 | Posted in:

5 Ways to Avoid Nanny Tax Problems

Alloy Silverstein’s Tax Tip of the Week

Do you remember “Nannygate”? Back when Bill Clinton was president, his nomination of corporate attorney Zoe Baird for U.S. Attorney General was derailed after it was revealed that she failed to pay the “nanny tax” for illegal aliens employed as household workers. That is just one high-profile example, but it’s really easy to be tripped up by the nanny tax if you’re not careful.

The tax law imposes employment tax responsibilities — including withholding Social Security and Medicare taxes on wages and paying the employer’s share — if a household worker’s wages is more than an annual amount. The nanny tax threshold of $2,000 for 2017 is increasing to $2,100 in 2018.

Although you may not think of yourself as an employer, if a household worker (such as a maid or gardener) works for you and earns more than that amount, you’re responsible for paying a nanny tax. Follow these rules to avoid nanny tax issues:

1. Make it official.

Apply for an Employment Identification Number (EIN) with the IRS. The EIN will be used in your future nanny tax dealings.

2. Know employment tax obligations.

As an employer, you’re generally required to pay Social Security and Medicare taxes equal to 7.65 percent of the worker’s wages.

3. Keep detailed records.

This is usually a good idea when you have tax obligations. Handle these employment matters in a business-like fashion.

4. Check for liability of other taxes.

These could include federal and state unemployment taxes.

5. Don’t forget file forms.

The IRS requires certain forms to be filed. For instance, you must submit a W-2 for a worker for 2017 and send copies to the worker and SSA by Jan. 31, 2018. The penalties for late or missed filings add up very quickly.

Finally, resist the temptation to dodge the nanny tax. You’ll have peace of mind if you follow the tax rules in this area. An Alloy Silverstein accountant and advisor can help you determine your nanny tax liabilities. Simply give us a call today.


Need help staying on top of your Nanny Tax responsibilities? Get a quote for hassle-free payroll from Abacus Payroll, Inc. →


© MC 2018 | “Tax Tips” are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.


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