Nanny tax requirement

[MarkCTX]

Client has a housekeeper that she pays directly, not an agency. She pays over $1,900 per year. When the issue of withholding income and employment taxes came up between taxpayer and housekeeper, the housekeeper said she pays in her own taxes herself. I believe it does not matter. The client is required to withhold and pay in employment taxes and FUTA. Must also get a EIN and prepare a W-2 and W-3 at year end. Just like an employer hires a worker and withholds taxes each payday. I think withholding income tax is not required but may, if agreed. Do I have this right?

[MDEA]

nanny tax

Does the house keeper work full time and only for this person?

[Kram BergGold]

My Take

First it looks to me that this person is a cleaning lady who comes in once every few weeks. If so, my understandiing is, if she brings her own vacuum cleaner with her she is self employed. Otherwise she is an employee. As a household employee there is no requirement to withhold income taxes. Both halves of SS and Medicare are often times paid by the employer.
Yes, a W-2 is required and yes unemployment both state and Federal need to be paid. All Federal taxes get paid with the 1040 and the computationis done on Schedule H.

[Lion]

I agree with Mark for a household employee.

If she has her own business, other clients, etc., then a business employing her would send Form 1099-MISC, but an individual employing her does not have to send 1099s for personal services.

[TAXNJ]

Apply facts

Apply the facts to this reference and let us know your answer

http://www.irs.gov/pub/irs-pdf/p926.pdf

[MarkCTX]

I need to find out if she furnishes her own cleaning products, brushes, vacuum, etc. She does work for other individuals as well. I believe she comes in only once a week. One horror story I heard was when these cleaning people retire they may not have paid into the SS system and don't have enough social security credits. Then they plead ignorance and name the people they worked for all those years and the IRS goes and nabs the "employers" for back taxes, penalties, and interest.

[FEDUKE404]

Failure to treat as employee issues

... One horror story I heard was when these cleaning people retire they may not have paid into the SS system and don't have enough social security credits. Then they plead ignorance and name the people they worked for all those years and the IRS goes and nabs the "employers" for back taxes, penalties, and interest.

You are correct.

I have first-hand knowledge of such.

"Housekeeper" came in half days once or twice a week, mainly for cleaning (no meals), in a husband/wife retiree household. When husband died, wife could no longer afford services so let the woman go. The "housekeeper" then filed for unemployment benefits et al and nothing showed up in their records.

To the best of my recollection, the government "fixed" everything by going as far back as statutes of limitation would allow, charging widow with unpaid FICA/Medicare/FUTA/SUTA plus interest. Then. . .they took that calculated amount and doubled everything to meet the penalty section of the bill.

These events happened in the mid 90's so I don't know what the current rules are.

Bottom line: Your client needs to decide if he is contracting a business/self-employed person to perform the services, OR if he has an "employee." A Schedule H could even be part of the solution.

In any case, "assumptions" can blow up in your face regarding issues of this type.

FE



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[TAXNJ]

W-9 etc

I need to find out if she furnishes her own cleaning products, brushes, vacuum, etc. She does work for other individuals as well. I believe she comes in only once a week. One horror story I heard was when these cleaning people retire they may not have paid into the SS system and don't have enough social security credits. Then they plead ignorance and name the people they worked for all those years and the IRS goes and nabs the "employers" for back taxes, penalties, and interest.

Have contractor provide a completed W-9; get copy of their liabilitity insurance certificate; copy of contractor certificate registering with applicable state to do business in the state. Draw up a contract for work to be done and signed by the contractor. Ask for all items notarized.

[TAXNJ]

Scams

You are correct.

I have first-hand knowledge of such.

"Housekeeper" came in half days once or twice a week, mainly for cleaning (no meals), in a husband/wife retiree household. When husband died, wife could no longer afford services so let the woman go. The "housekeeper" then filed for unemployment benefits et al and nothing showed up in their records.

To the best of my recollection, the government "fixed" everything by going as far back as statutes of limitation would allow, charging widow with unpaid FICA/Medicare/FUTA/SUTA plus interest. Then. . .they took that calculated amount and doubled everything to meet the penalty section of the bill.

These events happened in the mid 90's so I don't know what the current rules are.

Bottom line: Your client needs to decide if he is contracting a business/self-employed person to perform the services, OR if he has an "employee." A Schedule H could even be part of the solution.

In any case, "assumptions" can blow up in your face regarding issues of this type.

FE

[

Watch out for the scams. Cleaning Person arrives to perform household services (at a really cheap price) and hiring person did not ask for certificate of insurance. Hiring person was sued when cleaning person got "hurt" in the house. Getting to be popular.

[Roland Slugg]

Ask a simple Q, and the next thing you know people are telling you that the client needs to have the housekeeper: Provide a completed W-9, a copy of her liability insurance certificate, a copy of the registration certificate allowing her to do business in the state, and to draw up and get signed and notarized a contract for work to be done by said housekeeper. Good grief, what utter gobbledegook!

If the housekeeper in question cleans several people's houses, like about 99% of them do, brings all or most of her own products, equipment and supplies, like about 99% of them do, and works almost entirely unsupervised, like about 99% of them do, then she is an independent contractor, like about 99% of them are, and not an employee. And the question of IC or employee does not hinge on whose vacuum cleaner is used, as suggested in one reply above.

The IRS has several publications about household workers, and if you will read one of them, the payroll tax rules and the distinction between IC and employee will become pretty clear cut.

[TAXNJ]

Slug response

Ask a simple Q, and the next thing you know people are telling you that the client needs to have the housekeeper: Provide a completed W-9, a copy of her liability insurance certificate, a copy of the registration certificate allowing her to do business in the state, and to draw up and get signed and notarized a contract for work to be done by said housekeeper. Good grief, what utter gobbledegook!

Good grief, what utter gobbledegook!

Memory quote - have not heard that since high school

Trying to avoid a sluggish response - the more info to reference the better professional tax advice to give to client


REASONS:

- Original post was a simple question but with multiple concerns - as such more info given to poster for consideration
- noting that there are possible scams and what and how to protect one against such scams
- FE's post brought out a "real experience" years later - and what and how to be aware of
- documents needed when working with contractors for legal, insurance and tax support
- in case home owner and/or "house cleaner" is audited, home owner has necessary supporting documents

Info provided is more than just talking "Turkey" or "What happens in Nevada stays in Nevada" but your post is refreshing

[Roberts]

Ask a simple Q, and the next thing you know people are telling you that the client needs to have the housekeeper: Provide a completed W-9, a copy of her liability insurance certificate, a copy of the registration certificate allowing her to do business in the state, and to draw up and get signed and notarized a contract for work to be done by said housekeeper. Good grief, what utter gobbledegook!

I'm sort of shocked 2-3 people haven't declared they'd fire the client immediately because of the threat of impending legal action.

[TAXNJ]

Smart move

I'm sort of shocked 2-3 people haven't declared they'd fire the client immediately because of the threat of impending legal action.

Agree to do return if:

1 - If House Cleaner says they are independent contractor must provide info mentioned in "Slug response" post

2 - If House Cleaner says they are employee then appropriate tax withholding applies according to code

If House Cleaner does not agree (whether they are household employee or independent contractor) then stay away from preparing the return. Be interesting to know result from Original Poster.