Parents Want Nannies to File 1099 to Avoid Paying Employment Taxes

Parents Ask Nannies to File as Self-Employed to Help Themselves, Not Their Nannies

Parents that ask their nannies to file a 1099 are helping themselves, not the nannies they employ. Parents ask nannies to file a 1099 to avoid paying employment taxes. The IRS defines nannies as employees so parents that employ nannies must provide their employees a W-2.

In an article at 4nannytaxes.com it reads, "Worker misclassification - the practice by an employer of treating an employee as an independent contractor for purposes of avoiding employment taxes - is a constant issue in the field of household employment. Many household employers - and employees - simply feel this is easier, that the tax forms are too complicated, or the tax expense too high."

Tom Breedlove of Breedlove and Associates explains, "The IRS has ruled definitively that nannies and most other domestic workers should be classified as employees. Misclassifying them as independent contractors is considered tax evasion and offenders are saddled with back taxes, penalties, and interest. If caught, it is an extremely expensive mistake for families. Being classified as an independent contractor is not only illegal, it's financially bad for the nanny. That's because independent contractors are required by law to pay for both halves of the FICA taxes (social security and medicare)."

In another article at 4nannytaxes.com it clarifies, "Your nanny must be provided a Form W-2 every year for wage and tax reporting, and you must make payments to the Internal Revenue Service for Social Security and Medicare taxes, as well as the Federal Unemployment Tax (FUTA). It is improper to issue a Form 1099 to a nanny who earned $1800 or more (2012) in the year. Prosecution for willful misclassification of employees as contractors is an enforcement priority of the US Department of Labor, and the Internal Revenue Service has entered into information sharing agreements with many states, including New York, California and Virginia, to facilitate enforcement."

Nannies must file a W-2. If nannies aren't provided a W-2 the nanny should explain to the parents of the error and ask for a W-2  to be mailed or issued to them. If the parents fail to provide a W-2 the nanny should call the Internal Revenue Service (IRS) at 1-800-829-1040 and provide the employer's name, address, telephone number, and if available, an employer identification number (FEIN). The IRS will contact the parents and request a substitute W-2.

Missing W-2s are not an excuse to delay filing a tax return. If a W-2 or reissued statement cannot be obtained by the tax filing deadline, employees can use Form 4852, or "Substitute for Form W-2, Wage and Tax Statement." This form and instructions are available online at the IRS website. Complete the form using information from your paycheck stubs and banking records. Answer all the questions. Attach Form 4852 to your tax return in the place of the missing W-2. Using a Form 4852 may delay a refund because the IRS will need to verify information.