Author: Debra Watkins

The Nanny Tax

In January 1993, Clinton’s nomination of corporate lawyer Zoë Baird for the position of attorney general came under attack after it became known that she and her husband had broken the law by employing two illegal aliens from Peru as a nanny and chauffeur for their young child. They had also failed to pay Social Securitytaxes for the workers until shortly before the disclosures. While the Clinton administration thought the matter was relatively unimportant, the news elicited a firestorm of public opinion, most of it against Baird. Within eight days, her nomination lost political support in the U.S. Congress and was withdrawn. (Nannygate)

Do you have a Nannygate problem?  Employing undocumented workers is not the critical issue here, it is the non payment of employment taxes for services provided in your home by an employee.

From IRS Publication 926:  It is unlawful for you to knowingly  hire or continue to employ a person who cannot legally work in the United States.  You must complete a Form I-9  on each person that regularly works for you.

If you will pay cash wages of $1800 or more to any one household employee, then you need to withhold and pay social security and medicare taxes and give that employee a Form W-2.  State and federal unemployment taxes may be due, also.

Household Employer’s Checklist

You may need to do the following things when you have a household employee.
When you hire a household employee: □ Find out if the person can legally work in the United States.
□ Find out if you need to pay state taxes.
When you pay your household employee: □ Withhold social security and Medicare taxes.
□ Withhold federal income tax.
□ Decide how you will make tax payments.
□ Keep records.
By January 31, 2013: □ Get an employer identification number (EIN).
□ Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement.
By February 28, 2013 (April 1, 2013, if you file Form W-2 electronically): □ Send Copy A of Form W-2 to the Social Security Administration (SSA).
By April 15, 2013: □ File Schedule H (Form 1040), Household Employment Taxes, with your 2012 federal income tax return (Form 1040, 1040NR, 1040-SS, or Form 1041).
If you do not have to file a return, file Schedule H by itself.