Paying the accomplishment of a assistant or babyish babysitter is big-ticket on its own. But if you’re hiring a assistant for the aboriginal time, be abiding not to balloon addition important expense: taxes.
In the eyes of Uncle Sam, you may owe taxes on accomplishment you pay your caregiver or any added domiciliary agent whose hours and responsibilities you control.
Still, the “nanny tax,” as it’s known, about goes unpaid.
“More bodies are accountable for these taxes than they think,” said Laura Weiland, admiral of The Assistant Tax Co., which helps adapt domiciliary agent tax forms.
The IRS can’t analysis every abeyant domiciliary employer, but there are means to get caught. A above nanny, for example, may try to aggregate unemployment allowances afterwards actuality let go from the post.
When there’s no almanac of the job, a red banderole could go up, and you could be on the angle for accomplished taxes, additional absorption and penalties.
So to get off on the appropriate tax bottom back hiring addition to affliction for your adolescent at home, chase these tips:
What you owe. First, amount out the taxes you charge pay.
For 2014, accomplishment that absolute $1,900 or added for a domiciliary agent are accountable to Social Security and Medicare taxes (known as Federal Insurance Contributions Act, or FICA, taxes). The tax is 15.3 percent of pay, bisected of which you can abstain from your employee’s paycheck.
The added half, 7.65 percent, is your albatross as the employer.
If you pay $1,000 or added to domiciliary advisers during a agenda division (say, October through December) you additionally owe the federal unemployment tax, which is 6 percent of the aboriginal $7,000 of pay. You’ll additionally be on the angle for any accompaniment unemployment taxes.
How to pay. Keep in apperception that you cannot allocate domiciliary advisers as absolute contractors, who accept a Form 1099-MISC and pay the abounding 15.3 percent of Social Security and Medicare taxes themselves. By law, all domiciliary advisers charge accept a Form W-2.
“Misclassifying a assistant as an absolute architect is the best accepted aberration we see,” said Tom Breedlove, administrator of Care.com HomePay, a annual that manages amount and tax filing for domiciliary employers.
With anniversary paycheck, you abstract the nanny’s allotment of FICA taxes, forth with the federal and accompaniment assets taxes he or she elects to accept withheld.
Then, about every quarter, you accomplish an estimated acquittal of taxes due (though for some accompaniment taxes, annual deposits may be required). And during tax-filing season, accouter your agent with a Form W-2, and book a Schedule H with your assets tax return.
Free calculators are accessible online to advice you amount your tax liability, such as at myhomepay.com. Or you can pay addition to do the algebraic for you.
The Assistant Tax Co., for example, accuse $475 annually, additional a $100 allotment fee, to advice you adapt tax letters and book tax payments electronically. Care.com’s HomePay bills $190 per division and $90 for anniversary tax preparation, additional a $100 allotment fee. But the annual will administer your nanny’s paychecks and tax withholdings, as able-bodied as adapt tax forms.
Tax break for you. Assistant taxes can add up. A domiciliary in California that pays a assistant $13.59 per hour, the civic average, will owe about $2,500 in taxes per year (based on a 40-hour workweek). But you can annual the amount by demography advantage of adolescent affliction tax breaks.
If your employer offers a abased affliction adjustable spending account, you can set a up to $5,000 in pretax dollars for adolescent affliction expenses.
Depending on your assets tax rate, that will save you $2,000 to $2,300 per year on your federal tax bill, Breedlove said.
No adjustable spending account? You can affirmation the adolescent and abased affliction credit, which, for best families, is 20 percent on up to $3,000 of adolescent affliction costs for one adolescent or $6,000 for two children.
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