You have decided to hire a full or part-time nanny to help raise your child (or children). This can be beneficial for many reasons, including the fact that you know your child is in good hands when you are not around.
Along with the many benefits this brings, there are also a variety of drawbacks to be aware of. This includes the requirement of paying nanny taxes.
If the IRS considers you a household employer, you need to know what this means come tax time.
A nanny is considered a household employee. For this reason, if you pay cash wages of $1,900 or more, you have an additional tax obligation (on top of what you are already familiar with).
Here is what you need to do:
If you neglect to pay nanny taxes, you could soon find yourself in hot water with the IRS. While it is rare for the agency to take criminal action (more on this below), you will still be punished.
You will be held responsible for the payment of back taxes, penalties, and interest. And remember, compounding interest can lead to penalties that are often larger than the amount of tax owed.
Note: the IRS has the right to charge you with tax evasion, which can lead to imprisonment and fines of up to $250,000.
Regardless of what has happened in the past, you don't want to go down the same path in the future.
If the IRS considers you a household employer, don't try to game the system. Don't try to avoid paying nanny taxes. Instead, learn more about your tax obligation and follow the rules and regulations down to every last detail. If you don't, you could soon be faced with an enormous tax bill.