If you pay someone to come to your home and take care of your children, you may wonder if you have to pay the " nanny tax. "
many domestic workers expect to be paid in cash, either because they are unbanked or do not want to have taxes withheld. Who will know if you avoid all the paperwork and sentence, the election instead of simply paying cash and forget?
Unfortunately, it can be discovered if you do not pay tax on wages paid to domestic workers. Your employee could be injured at work or file for unemployment benefits, for example, when it becomes clear that they are not covered.
in addition, Internal Revenue Service (IRS) may ask about regular payments to a particular person in the unlikely event of an audit. Or word could just move, especially if you're a public figure.
At the end of the day, you'll sleep better if you know you have to pay taxes on your employees home or not.
[1945001taxes] Pay also benefit both you and your employees. By contributing to social security, your employees earn a record for future retirement benefits. The employee will also be covered by compensation and unemployment for workers. And you might be able to take a tax credit for child care expenses keeping everything above board.How do I know if I have to pay the nanny tax?
Not everyone has to pay nanny taxes. For example, if you take your children to a day care center or someone's home, you probably do not have to worry about.
In these cases, child care workers may be employees of the daycare center, contractors or part of another type of independent business. Someone is likely to be an independent contractor if he or she has several different clients.
If your child is covered by your spouse, your child under age 21, your parent, or child under 18, and you pay this person, you usually do not have to pay social security and Medicare.
as you will not be stuck paying the nanny tax to every high school student who watches your kids on Saturday night, either.
you must pay employment taxes if you pay your nanny - or any household employee:
- $ 1.00 or more during a calendar year or
- a total of $ 1,000 to your employees during a quarter
If you regularly pay someone to care for your child at your home, you probably have to pay the nanny tax. Here's how to do it
6 steps to pay domestic workers - "nanny tax"
Step 1 :. Ask your domestic employee for a social security number or Individual Taxpayer Identification number, an I-9 form completed and completed federal form W-4, and a withholding tax form on income of the state (if your state has a tax income). in addition, you can ask the employee if they want you withhold income taxes from their wages (optional)
Step 2 :. When you pay your employee, deduct the withholding tax on income if you and the employee agreed. you can use the tables in Published 15 IRS Guide to the employer's tax , to determine exact amount to withhold.
in addition, for 2015, you should generally deduct from the wages of the employee 6.2 percent for social security taxes and 1.45 percent for taxes of 'insurance for the employee.
you will also need to retain these same percentages to the employee's salary for the taxes you pay as an employer. Another option is to pay for the shares of these taxes yourself, for a total of 15.3 percent.
Remember not to deduct social security and Medicare tax on amounts you pay your spouse, your child under age 21, or more generally of your parent or any person under 18 years
Step 3: to avoid a large tax bill and possible sanctions next year, making estimated tax payments each quarter or increase the amount of tax income from your employer deducts from your pay
Step 4 :. as an individual (not a company), you can complete Schedule H, Household Employment Taxes in to your taxes on individual income. This is easier than filing multiple forms throughout the year as an individual company or another company would be required to do so
On Schedule H, you state: .
- federal income tax you have payroll deductions from your employees.
- federal unemployment tax (FUTA) if you paid cash wages to household employees totaling more than $ 1,000 in a calendar quarter of this year or the previous year. Generally, you pay taxes Futa on the first $ 7,000 of cash wages to each employee's house. Do not pay FUTA tax on wages paid to your spouse, your child under age 21 or your parents. Unemployment taxes state you generally pay lower your tax FUTA.
- Social Security and Medicare tax. You pay 15.3 percent of the total Social Security and Medicare taxes, which includes the 7.65 percent you may have withheld from the salary of the employee
Step 5 :. Check your state laws to learn about additional taxes on households that you might need to pay and report
Step 6 :. After the end of the year, you must complete Form W-2 for each employee and provide copies to them. You must also send a W-3 summary form to the IRS.
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