Each year more than a million parents nationwide elect to hire a nanny to care for their children. In fact, the U.S. Department of Labor cites the child care position as one of the fastest growing job sectors, expected to grow 20 percent faster than other positions by 2020. This means more than a million parents may or should be preparing to file their “nanny taxes” along with their personal income taxes by the April 15 filing deadline. Failing to pay the tax can result in back taxes, penalties, interest and fines up to $25,000.
Safety and convenience are common factors considered when hiring a nanny. However many parents are unaware when hiring a nanny or any other ‘household employee’ that they may be responsible for filing an annual “nanny tax” with the IRS.
“When you hire a nanny or other household employee, it’s a bit like starting an in-home business. Parents have to keep up with all the tax laws and calculations as well as filing regulations from taxing agencies on the local, state and federal agencies,” said
CEO and President Michael Alter.
Nanny tax typically has to be paid when an employee earns more than $1,000 per quarter or $1,800 per year, and the process is complicated and time-intensive, similar to the requirements of a small business. There are multiple steps involved, including filing an application with the state for a Federal Employment Identification Number and submitting forms to confirm the prospective employee is eligible for work. Next, payroll needs to be set up and provisions made to pay Social Security taxes and keep track of tax deductions, medical benefits and other insurance. And then parents have to keep up with tax filings for multiple agencies.
“It is a ton of extra work for parents already pressed for time and energy-deprived. Fortunately for parents, there are online services that relieve much of the burden. Today, you can literally run payroll from your phone just about anywhere with some services,” said Alter. “Not only are the right services cost-effective, but they can also provide peace of mind allowing parents to solely focus on the most important thing – their child.”