Tuesday, March 3, 2009

Being Paid Legally is Your Right

What Nannies Should Do if they Did Not Receive Tax Forms.

The term “nanny tax” is really an umbrella for several different taxes: Social Security and Medicare taxes and the federal unemployment tax. State unemployment tax and perhaps state disability tax may be owed as well.

A nanny is an employee if the parents can control what work is done and how it is done. However, if the parent pays an agency directly, and the agency is the employer of the nanny, the agency pays the payroll taxes.

During the economic recession it is more important to file taxes then ever before. The reality is that in a tough economy when parents are losing jobs, so are nannies. Nannies that lose jobs need to file for unemployment insurance. When asked about their last place of employment, they will have to name the parents.

If a nanny gets hurt while working in the employer’s home and cannot work, she will need to continue to pay her bills, so she will need workers compensation. But if the nanny has not paid taxes, she cannot get workers compensation insurance, and will have to report the parents in order to obtain benefits.

If the nanny is older and about to retire she deserves to claim social security benefits. But, social security can only be claimed by those who have paid taxes. To obtain social security the nanny would need to report the parents to the Social Security Administration.

If the parents and nanny think they are clever by describing a nanny as an independent contractor responsible for their own taxes, the joke’s on the nanny. The nanny’s tax bill will be much greater as an independent contractor than as an employee since the parents won’t be responsible for paying a portion of Social Security and Medicare taxes for the nanny.

Kathy Webb of HomeWork Solutions and 4nannytaxes.com explains what to do if your employer's did not submit taxes in an article entitled, "What do I do - I didn't get a W-2?" at http://www.4nannytaxes.com/NEWS/Form_W-2_Not_Received.cfm

Just a portion of the article explains that if your employer does not intend to give you a W-2 or intends to provide a 1099 (independent contractor) remind the parents that as a nanny you are entitled to a Form W-2. The employer is responsible to remit the Social Security and Medicare taxes, as well as pay unemployment insurance.

The article at 4nannytaxes.com explains, “If this doesn’t work, get phone support from the Internal Revenue Service (IRS). The IRS encourages employees in this situation to phone 1-800-829-1040 for guidance.”

4nannytaxes.com recommends, “Even if your employer refuses to provide the W-2 Form [you] the nanny are still responsible for reporting your nanny wages and filing an income tax return. This is accomplished by completing Form 4852 Substitute Form W-2.”

The article says, "Nannies who use the Form 4852 will need to provide the family's name (both John and Mary Smith), their address and phone number (phone is not requested but very helpful). If the nanny has received a Form W-2 from this family in the past, the nanny should report the EIN from the prior form. If not, enter Unavailable or Unknown.”

4nannytaxes.com explains, “The IRS requests that you wait until April 15 to file your return, in the hopes that the family will come around and provide you the correct documentation. The nanny cannot eFile when using a substitute Form W-2. The conventional paper tax return is mailed to the appropriate address. When the nanny is forced to use the substitute Form W-2 it is MUCH harder on the employer to get the mess straightened out. The nanny is pretty much done at that point. It is in the employer's best interest to resolve the problem before it gets that far.”

"When a Form 4852 or Form 8919 are filed by the former nanny, the employer will be questioned by the IRS and the IRS will assume responsibility for collection of employment taxes. Nanny always remains responsible for her income taxes, federal and state if applicable.

The better option for parents is to file taxes properly. There are also two ways parents can reduce their nanny taxes. They are a Flexible Spending Account or the Dependent Care Tax Credit to reduce their nanny tax costs. These credits are only available if the parents and nanny pay taxes."

Not reporting payments could cost employers big bucks in terms of penalties and interest. Not paying taxes does not protect nannies from being laid-off, hurt on the job, or when ready to retire. Not paying taxes is against the law.

Kathy Webb, 4nannytaxes.com, Home/Work Solutions, Inc., 2 Pidgeon Hill Dr. #550, Sterling, VA 20165

If you work as a nanny do you submit taxes? Have your employers given excuses why they won't pay nanny taxes as required by law?

10 comments:

Anonymous said...

No I don't submit taxes but desperately want to. I just don't know how to bring the topic up in a respectful way. I agreed to being paid under the table from the beginning and am nervous to rock-the-boat. It's hard brining up difficult subjects with the parents. I won't submit forms to for the past year to spite the parents but am convinced I have to bring up the topic and start submitting taxes this year.

I just worry about what if they say "no?" And, everyone (not just me) wants to bring home more money.

Anonymous said...

To Anonymous above: You just nicely ask the parents to pay your taxes since they are legally obliged to sumbit your taxes. Just say something like "I know we agreed that you would pay me under the table but I've been reading articles and I would like to start paying taxes from now on." You can buy some nanny tax software for them to get the process started. Mostlikely they already have an accountant anyway and won't need the software. Either way, it really isn't that hard and they cannot say no, it is against the law.

Their employer may have assistance to pay you through work and they cannot have that assistance if you don't pay taxes. There is also a childcare credit they can claim on their taxes if you pay taxes.

Maureen, S. Maryland

Anonymous said...

Dear Wanna-be-on-the-Books,

The times today are so uncertain that anyone being paid off the books would be crazy not to rethink that. Unemployment compensation saves many a nanny from eviction or the repo man. The new tax cuts have really cut the deductions from a nanny's pay check. Perhaps you can suggest that this year, instead of a raise, you would like the family to start deducting your taxes and paying the taxes. All the taxes don't come from your check, the employer pays about 10%, so don't expect to go on the books and get a raise KWIM. The peace of mind is priceless.

Anonymous said...

I have worked for four families over the span of 13 years as a professional nanny and I am ashamed to admit that this is my first nanny job that I ever paid taxes.

Nannies are emotional and want to make the parents happy and allow ourselves to be walked over by being too nice or passive. I always want to make my employers happy. I bend over backwards to make the parents like me. So much so that I just accepted being paid off the books.

I've heard all the excuses: too much paperwork, you'll take home so much less, and dummy me -- I let emotions determine this very "business" decision. It's not personal. It's business. Any and every other occupation pays taxes so I feel like a complete and utter idiot for listening to these lame excuses given by former bosses and agreed to just be paid cash.

Here's the thing: it's my salary and it's my life. Paying taxes or not is a huge decision. This is a very big deal. It's your salary, your bread and butter, your citizenship, your right.

Nanny Annie in Philly area

Anonymous said...

I feel completely the opposite of everyone else. I know it's not politically correct to say I don't want to pay taxes but why would I want to pay any part of my already small salary to the government? I just feel that I work so hard and they take so much and since most people don't pay taxes on their domestic staff why do I have to? I wish I knew how to ask to stop paying taxes. I'd like to be responsible to save my own money in my own IRA retirement plan and save enough so that if I get laid off I'll be ok and not have to pay for a meaningless war and for welfare moms.

Anonymous said...

I am not sure if you will be including one of this month's articles on wanted to mentiyou blog so I want to share what I found most helpful. It is ironic that nannies think they are helping themselves when they don't pay taxes or claim themwelves as independent contractors. I liked reading in the newsletter that a nanny hurts herself when she chooses those options. Ironically if you claim yourself as an independent contractor than the parents do not have to submit a portion of social security or disability and the nanny actually ends up paying more taxes. You pay more taxes if you claim yourself as an independent contractor.
Becky in Boston area

Anonymous said...

I keep reading in the newsletter and this blog why nannies should pay taxes but I still wish I didn't have to. I pay taxes and wish I didn't. I make approx $55,000 annually (more actually BEFORE TAXES) and one third goes to taxes. Yes, I will get a refund of probably $1,000 after submitting taxes. Why work hard, find better paying jobs, just to give the government one third of my earnings? It is so frustrating.

I have friends in town how are paid under the table $800 per week and they are taking home more than me when I make more than $1,000 per week, because I do not take home $800 despite making more than $1,000. See why nannies do not want to pay taxes when so many get to take home all or their earnings?

Since so many nannies do not pay taxes I feel like it isn't fair that I have to. I understand it is the law and I won't ask the parents to pay me off the books because I won't risk their jobs or get them in trouble. I am glad there is no way I will be audited or fined or in trouble of any kind and that is all good. But I want to take home more and would prefer to not pay taxes.
Saddle River NJ

Anonymous said...

You won't have the job if you submit a Form 4852 or Form 8919. Honestly, the only time you could do that would be if you know you will be leaving your job anyway. If communication has failed that miserably that you have to make the IRS interview your employers you won't have a job!
Colleen Levinsohn, Livingston, NJ

Anonymous said...

I agree with Colleen. The advice may be great by professionals but the reality is that if you file taxes and your boss doesn't want you to you will be out of a job.

Anonymous said...

I just want to mention that UNDERPAYING taxes is nannygate also. Most nannies I know get the parents to make it easy for all parties and estimate the salary lower than full salary.