The first thing which you need to know is what exactly are nanny taxes and after that we can proceed further in this article. A nanny tax is a kind of government tax which people who hire baby sitters, nanny’s, maids or house hold helpers have to pay more than what is specified during the tax year.
A nanny tax usually exists because according to the IRS a nanny or a house hold helper is the tax payers employee and not an independent contractor who can deal on her own behalf. The tax payer then becomes the employer and has to bear the responsibility of paying the social security taxes, medicare as well as the governments unemployment taxes on the salary that they pay to their employees.
Hiring a nanny or a baby sitter is an extremely common thing specially in the western world where both the husband and the wife have to earn for the house. They then entrust the responsibility of their kids as well of the house to the nanny.
A nanny is supposed to be responsible and educated enough to tackle kids and maintain the whole house. In some cases, nanny’s are also hired on a permanent basis and live with the family for 24 hours day and night. Their passports are with their employers ofcourse.
Breaking down the nanny tax
An example of the nanny tax is as follows. A tax payer pays 50 dollars to a baby sitter on every weekend. The tax payer will also have to bear the nanny tax. However, the nanny tax is not applicable if the nanny is family like the parent of the tax payer, spouse or if the baby sitter is a teenager under the age of 18.
An employer does not have to pay the nanny tax if he hires a nanny or a baby sitter through an agency. In this case, it is the agency which is responsible of paying the taxes and not the employer.
There are also some benefits to the employer of hiring a nanny. For instance due to the nanny tax the household employer can avail the advantages of social security and unemployment advantages as well. The employee will also get the advantage of income which is verified as well as a good and legal employment history which will be extremely helpful when the employer wants to apply for a loan, mortgage or wish to apply for a credit card.
The nanny tax will also give the employer the opportunity to get a lot of savings from flexible savings accounts as well as get significant benefits for their children from the concerned department.
Reasons for setting up nanny taxes in the correct way
It is quite important to set up and organize your nanny taxes in the correct way for yourself as well as for your nanny. If you manage the nanny taxes in the correct way, you will be able to find a good nanny as you will be able to portray that how professional you are. You can also maintain a good and strong relationship with your nanny and earn yourself a good reputation.
You can get great advantages and ways of tax savings through the flexible spending account and child and dependent care tax credit. This can save up a lot of thousand dollars for you as well as make your and your kids future quite secure.
Apart from that, you can have a great and relaxed mood. You will be at peace and so will your mind be. You would not have to worry about penalties, lawsuits, fines and audits.
Understanding the nanny taxes
If we have a look at the employer, there are great benefits for them if they pay the nanny taxes. A person who hires a nanny has to then make sure that they pay the nanny taxes. There are strict punishments and penalties if the employer does not pay the nanny tax and add up to the level of interest as well.
Families who do not pay the nanny tax will also be charged with tax evasion so it is advised to only hire nanny if you can afford to pay the nanny tax.
