Tax info
You will be quoted a net wage (i.e. the amount you will actually
receive in your hand at the end of the pay period) by your nanny agency or employer. However, whether you have been quoted
net or gross, it is important to understand that in reality you are always being paid a gross wage. It is advantageous to
both you and your employer to agree to a gross wage (or at least to establish in your contract that your salary consists of
a net wage plus employee Social Security and Medicare tax contributions and possibly income tax contributions). MANY MANY
times you, the nanny, think the net payment you receive every week is after all of your tax obligations, including income
taxes, while the family believes, rightly so, that they are only legally responsible for the Social Security/Medicare taxes.
It is an unpleasant experience when you receive your W-2 in January to find that no income taxes have been paid in. A single
nanny being paid net $400 per week would owe, at the end of the year, $1500 - $2500 in income taxes! Another important advantage
of agreeing to a gross wage is that if tax rates are cut, as they have been several times since 2000, you automatically get
the benefit, rather than getting the benefit (or not) at your employer's discretion.
What Happens if Your Employer Doesn't Pay the Taxes?
If you are not sure whether your employer is paying your Social Security
and Medicare taxes, make some inquiries. Ask your employer for their Federal Employer Identification Number [FEIN] and a written
statement of your quarterly earnings. The employer needs to report quarterly earnings to taxing authorities anyway, so this
information should be readily available. Employers using a nanny tax service, HomeWork Solutions for example, can obtain quarterly earnings reports from the nanny tax service. If they don't have an FEIN they can't be paying
your tax!
If you've just recently started working for them and they haven't employed
before they may be in the process of setting up employer accounts. This will take 4-6 weeks, a little longer if the employers
are not US citizens. Meanwhile, they will remain responsible for reporting all wages, even those paid before accounts were
established, and remitting all taxes.
If you leave a job during the year, particularly if it was not on good
terms, you should request, in writing, a wage and tax statement from the family. The family is legally obligated to provide
separated employees with W-2 summary information, including the family's FEIN, within 30 days of a request. Bear in mind that
the official form W-2 is often not available until late fall, so a written statement with all of the appropriate information
will suffice. Make sure the family has your forwarding address so they can deliver the official W-2 statement in January.
Where to go for help?
There are many resources available to help the nanny understand her
tax obligations. A good place to start is by calling the IRS forms office at 1-800-TAX FORM and request a copy of Publication
926. On the web, information can be found at www.4nannytaxes.com. If you worked with an agency, ask your agency representative for assistance, particularly if it involves the work agreement.
Most importantly, communicate your concerns and questions with your employer. If you like your job and your employer is happy
with your performance, open communication about pay matters can prevent a misunderstanding from turning into a major issue.
Information provided as a courtesy by Home/Work Solutions, Inc., The "Nanny Tax Experts." To request a free information about the "Nanny Taxes", call 1-800-NANITAX.
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