Big Time Nanny

[Snaggletooth]

Schedule H was designed for parents who employ babysitters in their home, so that their taxes could paid without the misery of having to administer a payroll. If you remember, this was established after 3-4 big-time politicians were facing scandals for not paying in small amounts of casual taxes on their own Nannys. (Google up "Nannygate").

How "casual" do these amounts have to be? One of my clients have just notified me that they are paying $200 per week. Employee's share of FICA/Med is over $15 per week, and the employer's share would not be deductible.

Would they be better off starting a payroll so they could at least not have to eat the $15/wk?

[JohnH]

Chicken & egg scenario. It's usually a matter of whether the Nanny understands the tax implications, and many just don't or won't (probably because many of them don't report the income anyhow). If the Nanny is reporting the income on Schedule C, then they should understand that having the employer withhold $15/week for SS/Med will actually SAVE them the other half which the Nanny is currently paying on Schedule SE. But if they aren't reporting it, then they don't see this as a savings at all.

From the employer's side, it really isn't a matter of choice - they are supposed to withhold, report the payroll, and pay the matching FICA/Med. In most states, you also have to deal with SUTA/FUTA once the payments exceed a threshhold. I have some who pay everything quarterly and another who pays the SUTA & SW/H quarterly but uses the Schedule H for the FICA/Med and FW/H. (You should see the tears come to his eyes in April).

I've seen some situations where a Nanny would threaten to quit over the prospect of having 7.65% withheld from their earnings, so the taxpayer just stepped up and ate it by grossing up enough to cover both halves. The theory was they don't want a disgruntled person in charge of little Muffy & Parker during the day, which makes a lot of sense to me.

Incidentally, I use the entire amount paid to the Nanny, including matching FICA/Med, SUTA, FUTA, etc when reporting the amount paid on the 2441. It usually doesn't matter since they will exceed the maxiumum allowable in a year anyhow, but it might make a difference if a part-year is involved.

[WhiteOleander]

Actually, you can use the employer paid portions of the FICA and FUTA, SUTA when figuring the amount paid for the daycare.

But, as John stated, it usually doesn't matter because they're already maxed out on the amount paid anyway.

[Snaggletooth]

941 and deposit requirements

I guess my real question is

"Where is the threshhold for 941 and deposit requirements versus Sch H."

[erchess]

I think

if they work for the taxpayer in the taxpayer's home performing nonbusiness services they can go on Sch H no matter what they make but remember FUTA/SUTA are independent of Sch H and have to be done quarterly or monthly depending on amount and the State involved. As with John H's Sch H client there is a large bill in April if the household employee was paid very much so some taxpayers might choose to spread the pain around by going the 941 route even though not required to.

[JG EA]

I guess my real question is

"Where is the threshhold for 941 and deposit requirements versus Sch H."

No 941's,

As was said goes on Sch H paid at the end of the year.

There will probably be a SUTA requirement at least quarterly.

The threshold is "wages of $1,600 or more in 2008 or $1,000 or more in any calendar quarter of 2007 or 2008" You can look up 09's amounts.

You do not have to withhold unless you and the wage earner agree to do so. So, you do not have to get a W-4. You do need a W-9 though.
You will be paying SS/Med/Futa on the Sch H. You can withhold the wage earner's SS/Med or you can pay it all at the end of the end of the year. If you pay you add it to the W-2 Box 1 but not on Box 3 or 5.

[JG EA]

Interestingly I had one where we paid Suta taxes each quarter, but in 2008 the whole thing came out under the $1600. So the client didn't have to pay SS/Med only Futa.

But we had been reporting the higher amount (Wages plus the amount the Client would have paid at year end) so the Suta taxes were too high by a few cents. The requirement for the state was what is what is in box 1 of the W-2. (I guess that is because they could claim that amount on unemployment.)

[Burke]

Snag, I am pretty sure there is no threshold. I did one for years for nursing care for a disabled spouse which ran up to $30-$40K annual payroll for 5 people, one full time and the others part-time. It all went on Schedule H. For the state withholding and SUTA, he took care of that quarterly.
Since his medical deduction was so high, he paid no income tax, but had sufficient FIT witholding from his salary to cover the payroll taxes due on Sche H. (He also had to pay workman's comp for them which was expensive.)