We invited our friends in the industry from GTM Payroll Services to give some insight on how to legally pay your nanny. Their contact information is below to get more information. We value their resources and encourage our clients to do their research when it comes to paying legally.
Should You Pay Your Nanny Legally?
Families typically hire a nanny assuming that paying them “under the table” comes with no risks and is an acceptable method of payment. In most situations, this is not the case. Read on to find out if your nanny needs to be paid legally and learn about the risks associated with paying “off the books.”
What are a nanny employer’s legal tax responsibilities?
If an employer pays cash wages of $1,900 (2014) or more to their nanny in a calendar year, they must withhold Social Security and Medicare taxes. Employers are not required to withhold Federal and State income taxes unless it is agreed upon by both parties. If income taxes are not withheld throughout the year, your nanny will be responsible for paying them at the end of the year. If an employer pays a total of $1,000 (2014) or more per quarter to a nanny, then they must pay federal unemployment tax.
What are the risks of non-compliance?
By not paying payroll taxes, the employer risks being investigated by the IRS which could result in hefty fines of $25,000-$100,000, penalties and potential jail time. They will also be responsible for the payment of all back employment taxes, interest, and penalties and will not be eligible for tax breaks like the Dependent Care Assistance Program or the Child Tax Credit.
Additionally, California requires you to provide workers’ compensation insurance for domestic workers; if you do not pay taxes, you cannot obtain the insurance and as a result, if your nanny becomes injured on the job, you could be responsible for his/her lost wages and medical expenses.
How can an employer manage nanny payroll and taxes?
Having a nanny can mean spending more than 60 hours a year handling tax and payroll issues, including tax and labor laws, registering for state and federal tax accounts, calculating and paying wages and taxes, and filing tax returns. With GTM Payroll Services, all of this is done for you, giving you time to enjoy your precious leisure hours. GTM’s most popular product, EasyPay®, includes all of the services listed below:
- Access to secure GTM online account
- Calculation of tax liability
- Collection of tax liability from your bank account
- Electronic filing of quarterly and annual tax filings
- Coordination of responses to inquiries from federal, state, and local tax authorities
- Year-end filing (additional fee required)
- Free direct deposit of payroll checks
- Employee self-service with access to W2s and pay stubs
- Detailed employee earnings histories
- Printed payroll reports
- Unlimited deductions and earnings
- Sick, vacation and personal time tracking
GTM assumes all responsibility for payroll and tax accuracy and timeliness, leaving you more time to spend with your family. Get started with a free quote today and make sure to let them know that Crunch Care sent you!
For more information about GTM Payroll Services and a FREE nanny payroll and tax consultation, along with the steps you need to take to become compliant, please visit GTM.com or call (888) 432-7972.