Tax Season Means Tax Scams – Avoid Them!

tax season means tax scams‘Tis the season – cybercriminal activity usually increases during this time of the year, often by using phone and email phishing scams. They try to access your personal information using a variety of tricks and strategies in order to file income tax returns and claim fraudulent refunds, unbeknownst to the affected taxpayers. Some cybercriminals may also accuse an individual of owing taxes and aggressively demand payment for a quick payout.

According to the IRS, scam emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. These phishing schemes may seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.

The IRS reminds taxpayers that they do not initiate contact with taxpayers by email, text messages, or social media channels to request personal or financial information. They also do not call to demand immediate payment, call about taxes owed without first having mailed you a bill, and will not ask for a credit card number over the phone.

If you feel you have been a victim of a tax scam, the IRS has a handy chart to help you identify the problem and the next steps you should take. Be cautious this time of year!

Proposed Regulations to Help Prevent Identity Theft

regulations to help prevent identity theftFresh off the recent Equifax breach , the IRS has proposed regulations that may help individuals prevent identity theft when it comes to their W-2s.

The proposal would allow truncated Social Security numbers (SSNs) on Form W-2 in the form of Taxpayer Identification Numbers (TTINs), which would hide full SSNs from identity thieves.

Employers would be permitted to voluntarily truncate their employee’s SSNs only on the copies of Form W-2 that are given to employees. Using TTINs on any documents – including tax returns or statements – that must be filed with or sent to the IRS or Social Security Administration would not be allowed.

Public comments on the proposed regulations are being taken by Dec. 18, 2017. Visit Regulations.gov to submit your comment.

Nanny Tax Compliance Infographic

Mistakes or misinterpretations of nanny tax compliance laws can mean IRS audits, thousands of dollars in fines and penalties or an employee lawsuit. Our friends at GTM Payroll Services have created this handy infographic that highlights what you need to do to maintain nanny tax compliance. Click the image below to view a larger version.

nanny tax compliance

Steps to Comply with Nanny Tax Requirements

steps to comply with nanny tax requirementsIf you are hiring a nanny or other household employee, it’s important to understand your obligations as a household employer. You must file all applicable nanny tax forms, Social Security, Medicare, federal and state unemployment insurances, and income taxes. These obligations apply to all full-time and part-time employees that you expect to pay over $2,100 (2018) in the course of a calendar year.

Some families pay their child care providers in cash or “off the books.” Although this gives the employee more income and saves families from the extra paperwork, it is illegal and can make you liable for unpaid childcare taxes, interest, and penalties. Therefore we recommend following this list created by our affiliate GTM Payroll Services to ensure you know the steps to comply with nanny tax requirements.

14 Steps to Nanny Tax Compliance

  1. Obtain household employer tax IDs (federal and state). In order to report childcare employment taxes and issue employee tax statements, you must obtain an employer identification number (EIN) from the IRS. Your state will require you to obtain a separate number for state unemployment insurance reporting and possibly income tax withholding reporting as well.
  2. File a new hire report with your state (if necessary). Generally, the information you must provide to state agencies includes the employee’s name, address, Social Security number, as well as your name, address, and federal employer identification number (EIN).
  3. Purchase workers’ compensation insurance (if required in your state). Workers’ compensation insurance protects both you as the household employer and your employees in case of a work-related injury or illness. See what the requirements are in your state.
  4. Adhere to all applicable tax, wage, and labor laws that pertain to household employment such as a Domestic Workers’ Bill of Rights. To see which laws impact household employment in your state, see our state-by-state guide.
  5. Verify your employee’s social security or tax identification number and complete Form I-9 for employment eligibility. Household employers must obtain a completed Form I-9 for every employee hired. This is used to verify the identity and employment eligibility of your domestic workers. Keep this form on file with copies of the documentation your employee provided for employment eligibility.
  6. Calculate employee tax withholdings. Your household employees’ wages fall under the Federal Insurance Contribution Act (FICA), so a portion of the wages you pay needs to be withheld and paid as Social Security and Medicare taxes. Both you and your employee are required to pay a percentage (7.65%) of the gross wages. You may pay the entire amount yourself and list the employee’s share as additional taxable gross income. The IRS, realizing that many employers will not want a large tax liability at the end of the year, strongly recommends quarterly estimated payments.
  7. Prepare and distribute paystubs (even if paying by direct deposit). Even though pay statement distribution isn’t required under federal law, most states have opted to pass state laws that require employers to provide regular statements about their pay and withholding. Employee name, Social Security number, pay rate, pay period, and deductions are what is generally required on the statements. Find out if your state has pay statement laws and whether pay stubs can be provided to employees electronically here.
  8. File and remit quarterly state employment taxes. Generally, all states require state income taxes to be paid quarterly with your state income tax department. See a list of state tax departments here.
  9. File and remit quarterly federal taxes using Form 1040-ES. The IRS encourages household employers to deposit federal nanny taxes four times a year using the 1040 ES form.
  10. Prepare and distribute Form W-2 to your employees by January 31 (for previous year’s taxes and wages). All wages and tax withholdings must be reported on your employees’ W-2 form at the end of the year. The W-2 form must be given to your employee, the IRS, and to your state.
  11. File Copy A of Form W-2 and Form W-3 with the Social Security Administration by January 31. See instructions on these forms here.
  12. Prepare Schedule H and file with your federal income tax return (Form 1040). Schedule H is filed annually and goes with step 9 on this list.
  13. Read and respond to government notices or alerts. When the IRS or another government agency contacts you about your household employment, it’s important to respond in a timely manner to avoid any penalties or other hassles.
  14. Monitor changes to tax, wage and labor laws that could potentially affect household employment. Some good websites to monitor information that could impact household employment can be found here. If your state is considering new laws like a Domestic Workers’ Bill of Rights or a paid sick leave law, make sure you stay informed on what the law entails and if it affects household employers.

The easiest way to ensure you are compliant with nanny tax laws is to have a professional service like GTM handle your household payroll. They will remove the hassles, worries, and risks of nanny tax compliance and give you peace of mind (plus more time in life for the things you enjoy).

Contact GTM for a free consultation at (800) 929-9213, or download their Complete Guide to Household Payroll for more information.

*The information contained within is designed to give the user general guidelines on the subject of household employment taxes. Tax laws can vary considerably from different taxpayers based on the circumstances and the state of residency. This information is not designed to serve as legal, accounting, or tax advice. GTM encourages you to consult with a competent tax advisor concerning specific matters before making any decisions. GTM does not accept any responsibility for positions taken by taxpayers for any interpretations on the information found within.

Paying Nanny Taxes: Not Just for Cabinet Nominees

paying nanny taxes not just for cabinet nomineesFollowing the presidential election in November, new potential Cabinet members have been going through the nomination process in the Senate. Two of those nominees have come under fire for issues relating to the hiring and paying of household workers. President Trump’s choice for White House budget director, Mick Mulvaney, failed to pay more than $15,000 in household payroll taxes, jeopardizing his nomination to the post. Mulvaney needs to pay state taxes, penalties, and interest, despite saying he settled his federal tax bill. President Trump’s choice to lead the Labor Department, Andrew Puzder, has admitted that he employed an undocumented immigrant to work in his home, saying he has paid all back taxes to the IRS and the state of California. He claims that once he found out she was not legally permitted to work in the U.S., he terminated the housekeeper.

Of course this is not the first time we’ve heard of this issue; the subject of nanny taxes has come up with nominees for Cabinet posts for Bill ClintonGeorge W. Bush, and Barack Obama. But while these cases are very high-profile and make news headlines, paying nanny taxes is not just for Cabinet nominees. It’s the law for anyone who pays a household worker more than $2,000 (2017) in a year, and just because a family isn’t answering questions in front of a Senate panel, there are many ways to get caught paying an employee illegally.

One of the most common ways employers who aren’t paying legally are exposed occurs when their employee gets injured on the job. In this case study, not having workers’ compensation coverage can be extremely costly:

A household employer living in New York State hired a nanny to care for his children, but ignored the state’s workers’ compensation coverage requirement. One day the nanny slipped and hurt her back. The doctor asked how she got hurt, and she relates that it happened while she was working. This leads to a workers’ compensation claim. New York is one of the many states that require household employers to carry workers’ compensation insurance for their employees. Of course, the workers’ comp board in New York had no record of her even being employed because the employer hadn’t paid her legally. So not only was the household employer penalized $37,000 by the New York Workers’ Compensation Board for not having a policy, the New York State Department of Tax and Finance and the IRS got involved, requiring the employer to open their wallet again to cover the back taxes and penalties incurred by not paying their employee legally.

Another common way the government discovers an employer is not paying their employee legally is when that employee leaves the job and files for unemployment insurance. But that can lead to the state’s labor department having no record of the employee holding a job. Why not? Because the employer hasn’t been paying unemployment insurance. This immediately raises a red flag and the employer can expect a call from the state, with significant fines likely to follow.

A third way employers paying “off the books” are exposed is when their employee decides they want to start being paid legally. For example, the two parties originally agreed on not withholding taxes, but later the employee started to notice what she was missing; she can’t apply for a loan or obtain credit because she has no legal work history; she isn’t saving any money for retirement and isn’t eligible for Medicare or Social Security benefits; and she can’t apply for unemployment insurance if she leaves the job. She wants to start getting these benefits, and if the employer does not agree to start paying legally, she can sue the employer, resulting in paying back taxes and penalties once the illegal working relationship comes to light, along with court and attorney costs.

A final common way for an employer to be exposed for not paying nanny taxes is in the case of an audit by the IRS or state tax agency. The audit could be a result of one of the above examples, or if there is another reason for an audit to be conducted, the non-payment of nanny taxes would be discovered, leading to far more fines and legal troubles than the original reason for the audit would have generated.

The bottom line is that it’s illegal to avoid paying nanny taxes, whether you’re a nominee for a Cabinet position, or you’re a regular family from Anytown, U.S.A. that hires a household employee.

Read more information on the benefits for both employers and employees on paying nanny taxes, or contact us at (518) 348-0400.

Nanny Taxes Made Easy in 13 Steps

nanny taxes made easy in 13 stepsThis is the time of year when many household employers are scrambling to pull together 12 months worth of pay and tax information so they can issue their employee a W-2, submit Form W-3 to the Social Security Administration and begin preparing Schedule H to file with their personal tax return. This is especially true for 2017 nanny taxes since this is the first year that the deadline to submit forms W-2 and W-3 has been moved up to January 31.

It can be overwhelming on top of all of the other tax season aggravations and headaches.

If this sounds like you, make a commitment now to hassle-free 2017 nanny taxes. By following these 13 steps, you won’t have a mad scramble to get your forms submitted on time. In the long term, these steps will keep you in line with tax, wage and labor laws that apply to household employers. This will help reduce the risk of fines and/or penalties for noncompliance.

  1. Purchase workers’ compensation insurance – it’s required in New York.
  2. Adhere to the New York minimum wage requirement ($9.70/hour).
  3. Pay overtime of one and half times your employee’s hourly rate for all hours worked above 40 in a week. This is federal law.
  4. Follow all applicable tax, wage and labor laws in your state including the New York Domestic Workers’ Bill of Rights.
  5. Read and respond to government notices or alerts.
  6. Monitor changes to tax, wage and labor laws that could potentially affect household employment.
  7. Prepare and distribute pay stubs (even if paying by direct deposit). Include: employer name and address, employee name, pay period start and end dates, check date, check number, gross earnings, total deductions, net pay, current and YTD payroll information, PTO accruals, and withholding allowances (based on employee’s W-4).
  8. File and remit quarterly state employment taxes.
  9. File and remit quarterly federal taxes using Form 1040-ES.
  10. Prepare and distribute Form W-2 to your employees by January 31 (for previous year’s taxes and wages).
  11. Prepare and file Copy A of Form W-2 and Form W-3 with the Social Security Administration by January 31.
  12. Prepare Schedule H and file with your federal income tax return (Form 1040).
  13. Keep records in a safe place for at least seven years.

Interested in learning more about getting your 2017 nanny taxes done right? Contact us at (518) 348-0400.

Save Your Career Opportunity by Paying Nanny Taxes

paying nanny taxesIt 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.

2016 Household Employment Laws

2016 household employment lawsIt’s a new year, and with that come changes or new laws and regulations that impact employers across the country, including household employers. Here is a brief overview of 2016 household employment laws.

Minimum Wage
The minimum wage went up again in this year in New York, rising from $8.75 to $9 per hour. Household employers need to ensure that they are paying their nanny or other employee at least that amount. If you are already paying an employee more than the minimum wage, you are not required to increase their rate of pay.

Mileage Rate
The standard mileage rate changed on January 1st of this year to 54 cents per mile for business miles driven, a decrease of 3.5 cents from 2015. This applies to employers who ask their nanny or other employee to use their own vehicle when performing work-related duties (transporting children, running errands, etc.). Household employers affected by this change should make sure to revise their expense reports and policies accordingly.

Nanny Tax Threshold
Also note that for 2016, the domestic employee coverage threshold amount has increased to $2,000, up from $1,900 last year; this means that you are required to pay taxes if you pay a nanny or other household employee at least $2,000 in a year. For those employees that earn more than $200,000 in a year, employers are required to pay an additional Medicare tax of 0.9%.

For more information, contact us at (518) 348-0400.

W-2s for Nannies

w-2s for nanniesIt’s that time of year again – tax season! Many household employers may have questions regarding W-2s for their nannies or other household employees. Please see the answers below to some of the most commonly asked questions.

Q: Does my nanny receive a 1099 form?
A: No. Household employees, in most cases, are not independent contractors. They receive W-2 forms. View more information on this topic.

Q: What is the deadline for giving the W-2 to my nanny?
A: The W-2 form needs to be postmarked by February 1st, 2016.

Q: I paid my nanny directly for the first 4 months of the year. Are those wages included on the W-2?
A: Yes. You should include all wages (on your own or with the assistance of a payroll provider) on one W-2 and not more than one.

Q: My nanny was paid a net amount. Why are the wages on the W-2 higher than what I paid her?
A: The W-2 form reports Gross wages paid to an employee, not net. Even if you negotiated and agreed upon paying a net wage, your employee’s Social Security, Medicare, and possibly Federal and State income taxes are added on top of the net in order to calculate the Gross wages that are reported as their income.

Q: When do I have to file the W-2 and W-3 with the Social Security administration?
A: If you have a payroll provider, you should first check with them to see if they are doing this on your behalf. If you have to do it on your own, the deadline for submitting the forms electronically is March 31, 2016. If filing a paper form, the deadline is February 29, 2016.

Q: What do I do with the Schedule H form?
A. This form is included with your personal income tax return. You should provide a copy to your accountant, or you should include the information if filing your own return.

Q: What is reported on a Schedule H form?
A. A Schedule H form reports total gross wages, your employee’s portion, and your employer portion of Social Security and Medicare taxes, your federal unemployment tax, and contributions made to your state for unemployment insurance.

Q: My nanny was on disability for a few months. Are those wages included in the W-2 form? 
A: Yes. The disability company should have provided a report of your employees’ income that was paid out to him/her. You should provide this report to your payroll provider to be included in your employee’s W-2 wages.

Please contact us at (518) 348-0400 if you have any additional questions.

Tax Responsibilities for New York Household Employers

tax responsibilities for new york household employersIf you pay your nanny or other household employee $2,000 (2016) or more in a year, you are required to pay state and federal taxes.

Taxes required to withhold, file, and pay:

  • Social Security
  • Medicare

Other taxes GTM strongly recommends withholding (but are not required):

  • Federal Income Tax
  • State Income Tax
  • Local Taxes, such as the New York City Local Tax

In New York, household employers are responsible for the following four taxes, to be added on top of the employee’s gross wage:

  • Social Security Tax Rate of 6.2%
  • Medicare Tax Rate of 1.45%
  • Federal Unemployment Tax Rate of 0.6%
  • State Unemployment Tax Rate of 4.1%

Calculation Example: Employee earns a gross salary of $850 per week:

EMPLOYEE GROSS TO NET CALCULATION PER PAY PERIOD
Weekly – 52 pay periods per year Gross Pay $850
Federal Income Tax $101.32
Social Security $52.70
Medicare $12.33
State Income Tax $36.17
Local Income Tax $22.93
Employee Take-Home Pay $624.56
EMPLOYER TAXES PER PAY PERIOD
Federal Unemployment* $5.10
Social Security $52.70
Medicare $12.33
State Unemployment** $34.85
Employer Responsibility $104.98
Total Employer Responsibility $954.98

* On first $9,000 of gross wages/calendar year
** On first $10,500 of gross wages/calendar year

Through our partnership with GTM Payroll Services, we have arranged for you to receive a FREE payroll and tax consultation. Their experts will walk you through your responsibilities step-by-step. Call GTM at (888) 432-7972 and mention our agency to receive a special discount!

Contact us at (518) 348-0400 if you have any questions or need more information.