As our lives seemingly becoming busier and busier with work, family and all of the logistical complications that come with these responsibilities, having a reliable nanny is a necessity for many parents.
If you hire a nanny, you have to think of them not just as someone you pay to help out with the kids, but as an employee. With that comes, certain responsibilities, notably making sure the nanny's payroll is properly handled. Because many parents aren't familiar with payroll (particularly as it relates to nannies), they may be prone to some common mistakes.
Here are the top five nanny payroll mistakes you'll want to avoid to keep from getting yourself in a pickle:
Failure to pay nanny taxes. This is easily the most important one to keep in mind. If you pay your nanny $2,000 a year or $1,000 a quarter, it is likely your responsibility to pay the Nanny Tax. Keep in mind that failure to pay nanny taxes can result in fines, back taxes, penalties and interest costs of up to $25,000
Thinking the nanny would prefer to be paid "under the table." While you may think the nanny appreciates just getting cash without reporting it to the IRS, there are a number of reasons it's better for them to be on the payroll. It shows an employment history; and it's necessary to receive Social Security and Medicare benefits in the future.
Not knowing what taxes need to be paid. The two most basic are Social Security and Medicare taxes, otherwise known as the "payroll tax." However, it doesn't end there. You're also responsible for matching (not just withholding) those taxes every paycheck; reporting those taxes via Schedule H with your annual 1040; and possibly the federal unemployment tax or FUTA.
Failing to verify your nanny is eligible to work. Ask your nanny to fill out IRS Form I9 (Employment Eligibility Verification). You should retain it for three years after your nanny is no longer an employee. This might seem like overkill, but you don't want to take any chances that could get you in trouble.
Doing nanny payroll yourself. Doing payroll taxes is complicated and time consuming. Why are you crunching numbers for your nanny when you hired him or her to make your life easier? For a very reasonable price, a nanny payroll service can take the burden off your hands.
With the potential for serious fines, nanny taxes aren't something you want to mess around with. There's real incentive here to take care of your nanny the right way. So make sure you keep this list in mind to help keep you in the clear.