Date Night Could Get You Into Trouble Come Tax Time
Many parents don't pay the "nanny tax" due on nannies and babysitters. Are you cheating the IRS?
Ever heard of IRS Publication 926? No? Well, if you’re a mom lucky enough to have a loyal babysitter for Saturday night date night or you employ a nanny—even on a part-time basis—this often overlooked bit of tax code may be turning you into a tax cheat.
Dubbed the “nanny tax,” Publication 926 pertains to taxes due on household employees, including nannies and babysitters (as well as housekeepers, gardeners, and home health aides). The IRS requires employers—meaning you—to pay Social Security and Medicare taxes if annual pay for any of these employees crosses a set threshold, which according to 2013 tax forms is $1,800 per year. If you do the math, paying a babysitter $35 every Saturday night could mean you’re on the hook come tax time.
How many people actually pay the nanny tax? Very, very few. According to a NYTimes article that came out soon after Treasury Secretary Timothy Geithner’s well-publicized tax issue related to an unclaimed housekeeper, various estimates put the nanny tax cheat rate at a whopping 80 to 95 percent of people who employ baby sitters, housekeepers and home health aides.
You may also recall 1993’s “Nannygate,” in which revelations about not paying the nanny tax sunk Clinton nominee Zoe Baird’s appointment as US Attorney General. However, skipping out on paying taxes on sitters and nannies doesn’t just apply to the rich and powerful. As I tried to find moms willing to go on the record about paying taxes on their nanny or calculating how much they had paid their regular sitter last year to see if it added up to more than $1,800, almost every response I received was something along the lines of, “Can I unsee this email?”
There are some ways to keep it honest with Uncle Sam. Hiring and paying a nanny or sitter through an agency almost always means the agency is taking care of the taxes through its own payroll system. In the eyes of the IRS, the person’s employer is the agency, not you. The same goes for housecleaning or maid services hired through an agency. If your babysitter is under 18, the IRS says you don’t need to worry about taxes, no matter how much you pay out. Likewise, if your sitter or nanny is your own older child under the age of 21, your spouse, or your parent, you’re also in the clear.
However, if you pay your nanny or sitter $1,000 or more in a quarter in 2013, not only do you need to worry about Social Security and Medicare, but you must also pay the federal unemployment tax, or FUTA, and could also owe state unemployment taxes.
Will this cause you to cancel next week’s date night? Or maybe, it’s just time to hire an accountant.
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