How Does Domestic Help (Nannies) Pay Taxes? – Guest Post
The IRS says “No” and employers say “Yes” leaving workers constantly wondering, how do domestic workers (i.e., nannies) pay taxes?
Tax season brings confusion when it comes to independent contractors and taxes. The majority of families today classifies their nanny as an independent worker and submits a 1099 tax form. By submitting an IRS 1099, employers are not liable for federal or state taxes, Social Security and Medicare tax or unemployment premiums. Ultimately, this places an unacceptable tax burden on the nanny and the IRS loses revenue.
Erroneous advice rules the web. Everyone wants to simplify the IRS 1099 rule down to one question – does the nanny work solely for one family or for several families. This is going to shock you, but that question is irrelevant when it comes to nannies. The IRS relies on indirect and circumstantial evidence.
• Do you control the nanny while on the job? Of course you do, especially since they are taking care of children.
• You give them instructions? I have never met any family that hands over their child without any instructions.
For the most part, the interpretation of employee status versus independent contractor is wrong. The determining factors involve a worker status test and whether the employee has the right to control the worker.
Recently, the IRS has escalated investigations into 1099 abuse and tax evaders. The agency will begin focusing their attention on the domesticated employee industry and honing in on tax returns. The IRS knows where to look and not paying nanny tax is pretty difficult to argue. Nannies are not receiving the benefits and protections defined by the law.
How IRS 1099 Undermines Nanny Benefits
Most nannies receiving a 1099 form have very few tax deductions, while being saddled with self-employment tax. The bigger picture revolves around the significant long-term losses to nannies.
• Independent contractors are double taxed – federal and state income taxes at a whopping 15.3 percent of your salary.
• Nannies miss out on qualifying credits for Social security. These payments go towards credits for retirement benefits.
• Nannies hurt on the job are vulnerable for termination without any disability payments; 1099 contractors cannot collect state unemployment insurance because of their classification.
There are other tax strategies for independent contractors, so, if you are still seeking advice on how nannies pay taxes look towards setting up a legal business.
Roxanne Porter is a freelancer & a regular contributor for nanny jobs. She helps in providing knowledge about nanny services & love writing on nanny related articles. She helps in giving a fair knowledge about nanny Jobs to the community.