payroll w-2 nanny

[TAX4US]

I stumbled into this one. TP owns a business. Pays employees including nanny from business. Includes all on 941's etc. Issues w-2's. It looks like on Schedule C I should subtract out nanny and head that number to 2441. Is there a problem that these wages and ss/mt on Schedule C will not match what is on 941's etc? What do you think?

[ChEAr$]

I stumbled into this one. TP owns a business. Pays employees including nanny from business. Includes all on 941's etc. Issues w-2's. It looks like on Schedule C I should subtract out nanny and head that number to 2441. Is there a problem that these wages and ss/mt on Schedule C will not match what is on 941's etc? What do you think?

Only in case of audit would an issue be raised. DOn't worry about it.

BUT, be sure that the nannys wages really qualify for form 2441. Could be that wife stays at home AND employs a nanny because she's rich! Grin

[ATSMAN]

It is obvious what he was doing?

I think it is fairly obvious what the taxpayer was doing. Deducting the Nanny's wages as business expense under wages for the business.

The issue is now that you have uncovered this little secret, if you go along with it as is you risk severe penalty if it gets uncovered during an audit. I have no doubt the taxpayer will throw you under the bus! Check Cir 230 again.

You have a difficult choice. I would put the tax advice as per law in writing to the client and keep a copy in your files. This could come back and haunt you.

I had a situation where I did a 1040X (increased the tax) and the client did not want to do a similar amendment for the state because he did not receive any notice from the state just IRS. I put the law in writing and told him either it was going to be done the right way or the wrong way by someone else. He threatened to go to someone else better than me. After 2 weeks he came back to get the state amended.

[Kram BergGold]

Whoa!

I believe if you look at the instructions for this situation you will see that you are supossed to use one EIN for both the work employees and the nanny. Don't assume the taxpayer was a cheater! He may have been following the letter of the law as long as he was not deducting hte nanny on Schedule C.

[Burke]

I stumbled into this one. TP owns a business. Pays employees including nanny from business. Includes all on 941's etc. Issues w-2's. It looks like on Schedule C I should subtract out nanny and head that number to 2441. Is there a problem that these wages and ss/mt on Schedule C will not match what is on 941's etc? What do you think?

IRS & SSA annually match figures with each others' records from the 941's and the W-2's issued under the same EIN. I don't know that they match them to a Sche C or other business entity's tax return unless it comes up for audit, in which it could be an issue. And if that happens, they might be really interested in looking into prior years. You are correct in that the nanny's wages should not be shown on the Sche C as an expense. But, if they qualify, they could be shown on the 2441. He really ought to discontinue this practice and use Sche H to report her wages once a year. He does not need another EIN to do this. And, there are other issues such as workmen's comp, insurance, medical and retirement benefits, etc which this practice might affect.

[TAX4US]

The way I found this was I noticed an increase in W-2 wages. Upon inquiring I found out what he was doing. Upon futher questioning tp said " how does service know I didn't hire her for office work and sent to house to take care of kids and other paperwork? TP not married but has all kids.BTW this situation is on the up and up. Other than stated tp has no extra stuff going on. I think I shall divorce this TP?

Question becomes I issue 27 W-2's for regular employees with w-3, then have to issue 1 W-2 marked Household on w-3. I gues when both w-3 and all w-2's get together they will match the 941 etc's?

[ATSMAN]

I have seen this game played before. Deducting baby sitting expenses as 1099-Misc payments because owner had to attend to business matters?

[ChEAr$]

I believe if you look at the instructions for this situation you will see that you are supossed to use one EIN for both the work employees and the nanny. Don't assume the taxpayer was a cheater! He may have been following the letter of the law as long as he was not deducting hte nanny on Schedule C.

Negatory, Mark. It MAY be done this way in case of a proprietorship, but I would keep everything 180 degrees separate and recommend same to client.

[ChEAr$]

The way I found this was I noticed an increase in W-2 wages. Upon inquiring I found out what he was doing. Upon futher questioning tp said " how does service know I didn't hire her for office work and sent to house to take care of kids and other paperwork? TP not married but has all kids.BTW this situation is on the up and up. Other than stated tp has no extra stuff going on. I think I shall divorce this TP?

Question becomes I issue 27 W-2's for regular employees with w-3, then have to issue 1 W-2 marked Household on w-3. I gues when both w-3 and all w-2's get together they will match the 941 etc's?

Household employment needs different and separate EIN.
After all, another number doesn't cost a dime. grin