As we posted in late 2016, President-elect Donald Trump has laid out plans to reduce taxes for those families paying for child care. Our friends at GTM Payroll Services now have an update on his plans and how they could impact household employers.
As Inauguration Day draws near, we’re getting a clearer picture of President-elect Donald Trump’s priorities when he takes office. Reducing child care costs was a centerpiece of Trump’s proposed tax plan during the campaign. It remains a focal point as he seeks Congressional support for his proposals.
“I am delighted to see that we’re looking at options for tax credits, tax incentives, ways for moms and dads to be able to write-off this child-care cost,” Rep. Marsha Blackburn, R-Tenn., recently told Jake Tapper on CNN’s “State of the Union.”
Blackburn has been working with Trump’s daughter Ivanka on child care legislation.
Child Care Discussions with Congress
Ivanka has already met with members of Congress. She discussed her father’s proposal for an above-the-line deduction that would be capped at the average cost of child care for the age of the child in the taxpayer’s state.
Families making less than $500,000 annually and single parents making less than $250,000 a year would be eligible for the deduction.
All families – regardless of income level – would also be able to establish Dependent Care Savings Accounts. These would be set up to help pay for the child care of specific individuals, including unborn children.
“You want to know your children are well cared for,” she said. “And there ought to be a way to have a savings account that you can start saving from on day one to help with those costs, because you know, it’s important to your life/work balance and the life of your family,” Blackburn said.
Impact on Legal Employment
Trump’s proposed child care deduction could also encourage more domestic employers to pay their nannies “on the books.” They would obviously need to report the amount they pay their employee to take advantage of the deduction.
This could then increase the amount collected in federal income taxes from nannies (whose wages are now not being reported) and the amount paid into Social Security and Medicare.
It’s estimated that there is more than $2.1 billion in unpaid federal income taxes and $4.6 billion missing in Social Security and Medicare contributions from employees who are paid “under the table.”
For more information, contact us at (518) 348-0400.
It seems like the career opportunity of a lifetime. The incoming president’s transition team is considering you for a position in his cabinet or a senior-level appointment in a government agency or even an ambassadorship.
Or…it’s the chance you’ve waiting for your entire career. You’re being considered for partner in your firm or a C-level position in a major corporation.
In either scenario, you’ve worked hard. You’ve sacrificed. Your professional resume is impeccable. You’ve cleared the background checks. You’re cruising through the vetting process.
Then come the questions that make your palms sweat, create a lump in your throat and knock you off stride:
“Have you ever hired a nanny, in-home caregiver, housekeeper or any other individual to work in your home? If so, did you pay the proper taxes?”
For jobs that require a government security clearance, you will be required to fill out SF-86 (Questionnaire for National Security Positions). That form asks, “In the past seven (7) years have you failed to pay Federal, state, or other taxes when required by law or ordinance?”
As it turns out, you hired a nanny to look after your young children as you and your spouse both work. You pay the caregiver under the table because it’s easier, and who has time to manage payroll and taxes? The nanny doesn’t mind. There’s more money is her paycheck. Plus, how was anyone going to find out?
This situation likely plays out more often than you think, considering just an estimated 10 percent of household employers pay their workers legally.
From “Nannygate” to Today
Robert Rizzi, a partner and chair of the tax group at Steptoe & Johnson LLP, guides political appointees through the vetting process. He recently told Bloomberg BNA that he has had clients under consideration for nomination by the Obama administration who were immediately disqualified for failure to pay their nanny taxes.
Going back a few years, Zoë Baird was the first high-profile individual to fall victim to this mistake. She was President Clinton’s first choice for Attorney General. However, Baird withdrew her nomination when it came to light that she and her husband had hired illegal immigrants to serve as chauffeur and nanny. They also failed to pay the proper employment taxes on the workers.
The controversy became known as “Nannygate” and led to changes in the way household employers report their taxes. Congress reacted by passing a law that raised the minimum annual pay that triggers tax payments and gave birth to Schedule H. This form, which reports household employment taxes, is filed with a domestic employer’s personal tax return.
Now nanny taxes is one of the “heavily scrutinized” issues that nominees can expect to confront during the vetting process.
The past eight years has seen an increased scrutiny of tax returns, according to Rizzi. He calls it a “hot-button tax issue” for nominees. Problems with Timothy Geithner arose during his vetting process for the Treasury secretary position under President Obama. He hadn’t paid Social Security and Medicare taxes on his domestic workers for several years. Geithner subsequently paid his back taxes and filed amended returns. He was confirmed shortly after President Obama took office. Former Sen. Tom Daschle wasn’t so fortunate. He was forced to withdraw his nomination for Health and Human Services secretary because of several tax problems, including failure to pay income taxes on his driver.
How to Save Your Career Opportunity
What can you do if you’ve been paying your domestic worker off the books?
First, take care of your back tax obligations as soon as possible. Now is a great time to deal with this especially if you just hired a household employee in the past year. Our affiliate GTM Payroll Services offers back tax work at reasonable rates. They can help you correct issues and become compliant moving forward.
Or maybe you’re unsure if you’re doing it right and would rather not find out at an inopportune time. Call GTM at (800) 929-9213 for a free, no-obligation consultation and they’ll review your specific situation and help you determine your compliance and next steps.
Your career opportunity deserves it.
The end of 2016 is only about 2 weeks away, so it’s important that everything is in order to ensure there are no surprises when it comes time to pay your nanny taxes next year. We recommend not putting off or ignoring your 2016 year-end tax planning. It’s important to look at your finances and think about any changes you will be making for the rest of this year and into early 2017. Some things to consider include:
- Adding/decreasing your employee’s hours during the holiday season
- Awarding a year-end bonus
- Adjusting salary for 2017
- Making note of the new minimum wage in New York
- Vacation pay for the holiday season
The domestic employee coverage threshold amount will stay at $2,000 for 2017; this means that you are required to pay taxes if you pay a nanny at least $2,000 for the year. Make sure you keep accurate records of any changes you make, along with any changes to any federal or state tax and wage laws.
Contact us at (518) 348-0400 if you have any questions or need more information.
It may seem easy to just cut a check or hand over cash to your nanny each week for her services. You don’t have to deal with tax calculations, forms and the hassles that come with being an employer. Your nanny may feel the same way. However, that’s a roll of the dice – for both you and your nanny – and one that you may not be able to afford. Here are 6 reasons to pay your nanny legally:
1. Your Nanny Files for Unemployment
For whatever reason, you and your nanny part ways. Perhaps it didn’t work out or your kids are now in school so you don’t need a full-time caregiver. She now needs to find a new job and files for unemployment benefits to help during the transition period. But your state’s labor department has no record of your nanny holding a job. And why would they? You haven’t been paying unemployment insurance. A red flag is immediately raised and you can expect a call from your state with a hefty fine soon to follow.
2. Your Nanny Gets Hurt on the Job
Any number of injuries or illnesses can happen on the job. Some can be serious enough to send your nanny to her doctor’s office or even the hospital. The doctor asks how she got hurt. In retelling her story, she says it happened while she was working. Now there’s a workers’ compensation claim. You live in one of the many states that require household employers to carry workers’ compensation insurance for their employees. Of course, the workers’ comp board in your state has no record of her even being employed because you haven’t paid your nanny legally. Again, expect to be contacted by your state and prepare to open your wallet.
Workers’ compensation helps restore your nanny’s lost wages and cover some of her medical bills. Even in states where workers’ comp may not be required, it’s a good idea to have this protection.
3. You’ve Hired a “Less than Professional” Nanny
Nannies who take their jobs seriously likely won’t take your position if you plan to pay them under the table. They know the benefits of being paid on the books even if it means a little less in their paychecks each week. They have verifiable incomes and legal employment histories. They can receive unemployment, Social Security, and Medicare benefits. And now, the Affordable Care Act requires everyone to have health insurance or pay a fine. By being paid legally, your nanny may qualify for a subsidy when purchasing coverage through a health insurance marketplace.
This is the type of nanny you want looking after your children. Your chances of having a long-term relationship with a “professional” nanny are much greater than with one where joining together in tax fraud is the beginning of your association.
4. Your Nanny Sues for Not Withholding Taxes
Let’s say you and your nanny decide to pay off the books. She’s enjoying the extra money in her paycheck and so far you haven’t had any issues. However, she starts to understand what she’s missing. She can’t get credit or apply for a loan as she has no work history. She realizes she’s not saving money toward retirement. She sees other nannies enjoying these benefits. Now she wants to be part of it. So she sues you for not following the law.
5. You Incur Fines and Penalties for Not Following the Law
There are a number of wage and labor laws and regulations that domestic employers need to follow. Some may be bundled into the New York Domestic Workers’ Bill of Rights. Others fall under the Fair Labor Standards Act (FLSA), Department of Labor rules, or IRS designations. These rules designate how to classify an employee for tax purposes, pay your employee including for overtime hours, properly track hours, provide time off, pay a minimum wage, and more. Not following the law will get you in trouble with your state and possibly the federal government. They won’t hesitate imposing a fine or penalty for your missteps.
6. You’ve Invited an IRS or State Tax Agency Audit
Getting caught paying your nanny “under the table” in any of the above scenarios could also trigger an IRS audit. Now the government is looking through your tax returns to see what else you may up to. If you haven’t done anything else wrong, the audit could just be a hassle. But you still may need to pay back taxes or a fine for not legally paying your nanny. According to The Motley Fool, failing to pay employment taxes can cost on average $25,000 in penalties and interest.
Take the time to do it right. Or, even better, have someone do it for you and save yourself the trouble. You will have peace of mind and may be able to take advantage of tax savings through the Child and Dependent Care Tax Credit and your employer’s Flexible Spending Account.
For more information, contact us at (518) 348-0400.
Following the presidential election, our friends at GTM Payroll Services took a closer look at the proposed tax plan by Donald Trump with specific focus on his plan for child care taxation. Here is what their analysis revealed:
Trump Tax Plan: What it Means for Domestic Employers
Trump’s proposal to help reduce the costs of child care could also impact how domestic employers pay their nannies. Many nannies aren’t paying federal income taxes or contributing to Social Security and Medicare because their employers pay them “under the table.” But could that change?
Trump Tax Plan to Cut the Costs of Child Care
Trump is proposing an above-the-line deduction that would be capped at the average cost of child care for the age of the child in the taxpayer’s state. An above-the-line deduction subtracts from a taxpayer’s gross income in calculating an “adjusted gross income” for tax purposes. Families making less than $500,000 annually and single parents making less than $250,000 a year would be eligible for the deduction. Stay-at-home parents and families that use grandparents for child care would also be eligible.
The deduction would apply to children under age 13 and is limited to four children per taxpayer.
All families – regardless of income level – would also be able to establish Dependent Care Savings Accounts (DCSAs). These would be set up to help pay for the child care of specific individuals, including unborn children. Parents and their employers can, in total, contribute up to $2,000 annually into a specific account. Any funds remaining in the account when the child reaches 18 could be used for education expenses, but additional contributions could not be made.
It’s unclear how the average cost of child care would be determined under Trump’s plan.
State-by-state costs vary widely. For example, Massachusetts has the highest annual cost for full-time infant care at $17,062 for center-based care and $10,666 for home-based care. Mississippi is the least expensive state for child care with an average cost for center-based infant care of $4,822 and an average cost of $3,972 for home-based care.
Will Trump Tax Plan be Incentive to Increase Legal Employment?
Trump’s proposed deduction could encourage more domestic employers to pay their nannies “on the books.” They obviously can’t take advantage of the deduction without reporting the amount they pay their employee.
This could then increase the amount collected in federal taxes from nannies (whose wages are now not being reported) and the amount paid into Social Security and Medicare.
Let’s break it down.
It’s estimated that there are one million nannies in the U.S. According to the National Domestic Workers Alliance, less than nine percent of nannies are paid legally meaning income taxes are withheld and both the employee and employer pay into Social Security and Medicare.
The average hourly wage for a nanny is $9.80 according to the Economic Policy Institute, which equates to an annual gross pay of $20,384. She would owe about $2,256.28 in federal income tax as well as pay $1,263.81 into Social Security and that same amount into Medicare. Her employer would also contribute that total to Social Security and Medicare.
If 910,000 nannies are paid “off the books,” (ninety-one percent of one million) that means there is more than $2.1 billion in unpaid federal income taxes and $4.6 billion missing in Social Security and Medicare contributions.
Nannies – like most taxpayers – take advantage of deductions and credits to lower their overall tax burden so the amount in unpaid taxes and contributions is likely to be slightly lower than our estimates.
A tax plan that incents more domestic employers to pay their nannies legally through deductions can offset this diminished revenue by increasing the overall tax base. More employees would now be “on the books” and paying taxes while both employees and employers are contributing to Social Security and Medicare.
GTM Payroll Services proposes that all domestic employers – regardless of annual income – be able to deduct wholly 100% of their child care costs from their taxable income.
This type of incentive would remove any remaining obstacles for employers to be fully compliant with household employment tax laws and add hundreds of thousands of domestic workers to the tax base who would pay billions of dollars in federal income tax and Social Security and Medicare contributions.
While there are no federal laws that mandate employers to provide employees time off designated for voting, most states prohibit employers from taking actions like disciplining or firing an employee who takes time off work to vote. Some states require employers to allow a certain number of hours of time off so an employee can vote. And some states also require payment to employees for voting leave.
In New York, employers are required to give up to two hours paid leave to vote to employees who do not have four consecutive non-working hours between the polls opening and closing, and who do not have “sufficient” non-working time to vote. Employees must request the leave between two and ten days before Election Day. The employer may decide whether the leave is to be taken at the beginning or end of an employee’s shift. Employers must conspicuously post this rule in the workplace ten days prior to the election.
In general, most state voting laws provide that the employer:
- May ask employees for written requests prior to taking time off for voting,
- Can specify a time when employees are permitted to take voting time off,
- Is not required to give paid time off (if voting polls open for at least two hours outside of an employee’s regular shift schedule),
- May not include lunch/meal periods as part of the time off from work, and
- May not be disciplined or retaliated against for exercising their rights to take time off and vote.
Some best practices for household employers to consider include:
- Allowing your employee(s) requesting time off for early voting to do so just as you would for employees voting on Election Day,
- Double-checking the voting leave laws of your state, and
- Reminding your employee(s) about relevant policies and procedures
Contact us at (518) 348-0400 for more information.
Anyone can be caught off guard by an unexpected illness or injury. Offering health insurance for a household employee benefits both the employee and the employer. Not only does it help employers with recruiting and retaining top quality nannies and other employees, but it safeguards against future health problems, minimizing surprise illnesses and the resulting absenteeism. For employees, having health care coverage limits out-of-pocket costs, protects assets, and safeguards future earnings.
More importantly, the Affordable Care Act (ACA) requires all individuals to have health insurance or risk being fined. The ACA can be complicated to navigate, especially within the realm of household employment. Here is a quick guide for obtaining health insurance for your nanny or other household employee.
Before diving into the complex world of health insurance, there may be a couple of easier solutions.
- How old is your nanny? Your employee may be able to be added to her parents’ policy if she is 26 years old or younger.
- Is your nanny married? If so, it may be more affordable for her to be added to her spouse’s health plan, if the spouse is covered through their employer.
Individual health insurance plans can be purchased by:
- Visiting your state’s health exchange or the federal exchange if your state does not offer one. See this list of states that have their own exchange.
- Obtaining coverage directly through an insurance company, or by contacting a private exchange site.
Can You Cover or Reimburse Your Employee for Premiums?
If your nanny purchases coverage on a state or federal exchange, then by law, an employer may not cover or reimburse for premium payments. If your employee buys coverage through a private exchange or directly from an insurance company, then you can pay part or all of their premiums for them directly if they are your ONLY employee.
If you have more than one employee, you can set up a plan to help cover part or all of their premiums, and receive tax-free benefits. These plans include HRAs, POPs, FSAs, and HSAs. Through these plans, no taxes are paid by either the employer or employee on health care coverage.
- Household employers that also own their own business may want to put their nanny on their business health plan. This is not permitted, because a nanny is not employed by the business – they are a household employee. Insurance companies will likely refuse to pay any benefits if you submit a claim for a household employee through a business insurance policy.
- It’s also important to know that a household employee requesting individual coverage must apply for coverage themselves – the employer cannot submit an application or other paperwork on the nanny’s behalf. The employee must fill out the forms and submit their medical information.
- If you as the employer are applying for a group plan, a group application must be completed by the employer and the employee must sign the enrollment forms.
Our affiliate GTM Payroll Services’ in-house insurance brokerage can guide you through the insurance rules and regulations in New York. For more information, contact GTM at (800) 929-9213 or get a free insurance quote.
In the corporate business world, many companies require their employees to sign a non-disclosure agreement stating that any private and confidential information they come across must remain safe, as employees are privy to reports, policies, procedures, and other internal business-related communications. The world of household employment, while in a very different setting, is not so different when it comes to private information. So do you need a non-disclosure agreement for your nanny or other employee?
As a household employer, your employee has potential access to intimate and sensitive information. Whether it’s overhearing a conversation about finances, seeing a child’s medical records left on the counter, or being given the home alarm system code, your nanny must be trusted to keep information like this private and confidential both during and after their employment. Employers who are well-known in their community and those with celebrity status will be even more likely to make the employee legally bound to keep household information private.
While many employers will simply rely on good faith that their nanny or other employee will not violate that trust, some may wish for the security of a non-disclosure agreement. Such an agreement should be presented when the employee is hired, and should state clearly that the nanny is not to disclose any information pertaining to the household, whether she is on the clock or not. Households with multiple employees may also wish to state that workers may not discuss salary and benefit information with one another*.
* Under Section 7 of the National Labor Relations Act (NLRA), employees have the right to discuss the terms and conditions of their employment, including their work hours, work conditions, and pay. However, domestic workers are among the types of employee not included in this law.
Employers that decide to use a non-disclosure agreement should also include the consequences an employee will face if they violate the agreement by disclosing – or even threatening to disclose – private information. Such consequences could be getting a court order preventing the employee from disclosing such information, or preventing the employee from going to work for someone to whom they disclosed the information. Other consequences could include the employer having the right to claim losses and damages from the employee. Termination is another potential consequence for the employee’s breaking of the agreement.
A New England Nanny’s temporary caregivers sign an agreement with the agency to not discuss or disclose private information. Families that hire long-term caregivers need to create their own agreement if they choose. For more information, contact us at (518) 348-0400.