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Beware the 'Nanny Tax' http://ift.tt/2oeJgK1 You may think you can pay your landscaper, nanny or maid “under the table” and it’s no big deal. They just want cash and don’t care, so why not? After your "worker" leaves, he or she may file for unemployment, apply for student aid to attend college or want to file a tax return to get a loan. All of a sudden, you are tagged by a state or federal agency because you haven’t paid the “nanny tax.” Now, you need to buckle up for penalties and interest on the amount of tax you should have paid in the first place. So, how can you prevent tax fraud and save yourself from a load of trouble? Below are the keys you’ll need to track and report your household employees before the IRS comes after you. Related: 75 Items You May Be Able to Deduct From Your Taxes Don’t leave anyone out!In 2016 or 2017, if you paid a household employee more than $2,000 annually, you are required to withhold payroll taxes: the nanny tax. In these cases, you don’t have to issue a formal paycheck every other week unless you want to. You can pay cash and report these payments at the end of the year. But, the IRS is stepping up its audits on those with workers in their private homes, so make sure you are up to speed on the rules that apply to your “help.” Applicable workers:
Exempt workers:
Related: 7 Tax Facts Entrepreneurs Need to Know Before Filing This Year Paperwork, paperwork, paperwork!To prevent fraud penalties and keep track of your employees, be sure to keep careful employment records of anyone who works in and around your home. Remember the list from above and try not to leave anyone out when you acquire their information. For starters, be aware of the following forms:
All tax records and forms of household employees should be kept for at least four years after filing. Related: How to Organize Your Expenses Give them (the IRS) what they want!For federal taxes, you’ll need to account for both FICA (essentially Social Security and Medicare) and FUTA (unemployment) taxes. For FICA, you can withhold 7.65 percent from your worker’s wages and match that percentage when you pay the tax on behalf of the worker. Thus, at the end of the year, you’ll report how much you paid the worker and remit 15.3 percent of the total to the IRS with Schedule H on your 1040. FUTA is a simpler calculation as you only need to remit 6 percent of the first $7,000 of wages (maximum $420) to the IRS -- also with Schedule H on your 1040. Although you may be required to withhold FICA and FUTA, you aren’t required to withhold federal income taxes from the employee’s pay. You have to withhold only if your nanny asks you to and you agree to withhold. (In that case, have the nanny fill out a Form W-4 and give it to you, so you can withhold the correct amount.) However, you may be required to withhold Social Security and Medicare tax (FICA). And you may also be required to pay (but not withhold) federal unemployment (FUTA) tax. For state taxes, you may owe some SUTA (state unemployment taxes) or workers’ compensation. Check with your tax professional and/or research the regulations in your particular state to see if and when you need to consider these taxes as well. It’s easy to think you don’t need to worry about the so-called “nanny tax” or that it doesn’t apply to you. And, let’s not even talk about what might happen if your worker gets hurt on your property and you haven’t been paying workers compensation Insurance. At the very least, use the tools above to track your household employees effectively, report their wages correctly, and withhold and remit the right amounts. Don’t ignore the issue -- get ahead of it! Mark J. KohlerMark J. Kohler is the author of The Tax and Legal Playbook and What Your CPA Isn’t Telling You from Entrepreneur Press, and a CPA, Attorney, Radio Show host. He is also a partner at the law firm Kyler Koh... Read moreBusiness via Entrepreneur: Latest Articles http://ift.tt/1V7CpeP March 30, 2017 at 02:14AM
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