Is it okay to pay your nanny or babysitter under the table?
Many people skip the tax-related paper work when they hire a home daycare provider. Do you think this is okay to do? Have you filed the IRS paper work for a nanny before?
Does it matter if the baby-sitter is under the age of 18? Or only watches your childen 2x per week (rather than full time)? Or if she files income taxes because she does have another part-time job?
Get an au pair! You do not have to provide them with any forms or claim FICA or Medicare or anything. You can get money back on the stipend you pay, as agencies have a tax ID number. You can do the pre-tax child care claim through your employer if they offer it. Au pairs are supposed to file an EZ tax form, but if they don't, it has no reflection upon you or your taxes. Otherwise there is a load of paperwork you have to deal with... ALWAYs pay taxes on sitters and part time help, it will come back to haunt you if you don't!
For legal-protection reasons for the employer, and for social security credit reasons for the employee, I do believe in doing the paperwork for a nanny or other childcare provider who works over the minimum number of hours. That said, one of the biggest issues is the complexity of the process. My husband and I - both graduate-level educated professionals - tried doing it ourselves, and got into a red tape battle with the IRS. Then we paid Bank of America to take care of it for us .... and had the same corrections to deal with on our tax returns. If the government wants people to pay legal taxes, they really need to simplify the returns process!
Babysitters can be done on 1099, but if you pay them more than $600 in a year you legally have to submit a 1099 form, and they have to meet the legal requirements of a contractor, which most regular nannies do not qualify for)...you can ask them to sign an agreement to be paid 1099 but it would have to be legally clear to them.
From a legal standpoint from the IRS, if you pay someone for work in your house and pay more than $1000 per year, you are required to do payroll. This is from 3 separate accountants/bookkeepers and information on the IRS website. The challenge is that paying unemployment and employer portion of social security and medicare adds an expense to us and for some people actually makes them less likely to work for us. The up side is that this is the right thing to do and we do not risk fines. The fines can be HUGE for non-compliance.
I am a huge advocate of paying on the books ever since I got burned by a former employee because I didn't look into this enough. A nanny or babysitter is not an independent contractor, you can read IRS Publication 926 which breaks down household employment liabilities. A former employee filed for unemployment after being let go, which I thought was fine. A lot of money for lawyer fees, back taxes, and a huge headache later I have paid legally ever since. I use a company called GTM, and they are reasonably priced and handle everything, which of course we know is perfect for a busy mom! They do offer free consultations, and I would recommend them to anyone.
Actually, a babysitter or housekeeper are often considered sub contract labor and are responsible for paying their own self employment tax and social security. Don't cheat yourself though, you can deduct the cost of babysitting, house keeping and nanny services during times you work or go to school. You should always have the sub contract laborers sign for receipt of payment for services and keep them in a large envelope. When taking a deduction you must acknowledge who the subcontractor(s) was/were. This means supplying names with at least city, state and period of time they worked for you.
Now filing long form and itemizing means you supply that info when you file. If you file short form or the EZ form and you take the deduction for child care, you will only need to hold on to your receipts
until such time as the IRS requests proof you paid child care, though I think you must at least provide a name for the care giver/sub contractor. It is never in your best interest to pay under the table for childcare since you lose your deduction and aid others in cheating the government.
If you do decide to withhold tax and social security, that is much more complicated and I would suggest calling the IRS for correct up to date information. Hope this is helpful. Ms.B
maybe when it comes to a home daycare or a nanny proper procedures should be followed but when dealing with a babysitter who is working for a few hours or only on certain days I do not see the harm
uh, no! It is illegal and even discussing it on a forum like this is not real bright! Just my two cents.