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As discussed earlier, there are important differences between nannies and au pairs. While the au pair is not considered an employee in your home, the nanny clearly can be depending on the arrangement. If he or she is not an employee of an agency then you are the employer. Where there is an employee, there are taxes. If you are the nanny's employer, you are responsible for not only paying taxes, but also frequently a good deal more:
The IRS requires that you pay taxes for your nanny if he or she has been paid $1,100 by you in the past year or if he or she was paid $1,000 or more in any calendar quarter in the past two years . Now you may be saying to yourself, "Wait a minute, I know plenty of people who hire nannies, and they don't go through all this." You are right, they don't. The fact of the matter is that many, many people hire nannies, often as illegal aliens , and pay them "under the table" or strictly in cash so that there is nothing traceable for the IRS. The problem is that it is illegal to hire an illegal alien or a person who has entered the United States illegally ”even if you don't know that the person is an illegal alien. The other problem is that it is illegal to not pay taxes. You may also hear people say that nannies are independent contractors and should be responsible for reporting and paying his or her own taxes. Here's a news flash from the IRS: Nannies are not independent contractors. A nanny is a household employee because you decide his or her salary, pay schedule, hours at work, and the way in which he or she will carry out their duties . If you hire a person to be a nanny in your home, think of him or her as you would an employee of your company. Except in this case, the company is your family. Like a company, you are expected to pay state and federal taxes. For a clear, step-by-step explanation we suggest you obtain a copy of IRS Publication 926: Household Employer's Tax Guide . The fastest way to obtain this publication is to visit the IRS website at www.irs.gov.
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