Even if you are not a high profile politician being considered for public office, you should know that the so-called “nanny tax” refers to any household employee, including caregivers and housekeepers.
Remember Zoë Baird? She was on track to be the first female U.S. attorney general in 1993, when it was revealed that she had failed to pay the “nanny tax” for her household employee. She wasn’t the first person whose career was sidetracked by this issue, and she’s also not the last.
Kiplinger’s recent article, “Paying Taxes for a Hired Caregiver,” says that now we have Congressman Mick Mulvaney, who was President Donald Trump’s choice to run the Office of Management and Budget (OMB). Congressman Mulvaney admitted that he failed to pay five years’ worth of taxes for the woman he and his wife hired in 2000 to help take care of their triplets.
There was also Andrew Puzder. Once he was nominated as Labor Secretary, he disclosed that he hadn’t paid the required taxes due for a household employee who was illegally in the U.S. Both men stated in their confirmation hearings that they’d paid the back taxes they owed the government.
Remember that the nanny tax isn’t just for Mary Poppins, a whimsical movie role played by Julie Andrews who had charge of a banker’s kids. The so-called nanny tax covers any household employee, like a housekeeper, landscaper, or—of particular interest to us here—the caregiver for your spouse or elderly parent. If the caregiver is provided through an agency or is self-employed, you don’t have to be concerned. However, if you hired the individual yourself and control the type of work that is done, you’re most likely considered to be an employer in the eyes of the IRS.
If you hired the caregiver and control his or her work and if you paid more than $2,000 last year, the nanny tax applies. When you file your tax return, you are required to include a Schedule H and pay the 15.3% Social Security and Medicare tax on the wages you paid. The tax is supposed to be split evenly between you and your employee, but whether you withheld the tax from your employee’s wages during the year or not, you’re responsible to pay the full amount when you file your return.
There’s more: if you paid more than $1,000 to any household employees during any calendar quarter in either 2015 or 2016, you also owe the federal unemployment tax and depending on your state, you may owe state unemployment tax.
Provide your employee with a W-2 that shows wages paid and any withholding taxes (these were due at the end of January) and make sure to send a copy to the Social Security Administration.
After all, you never know when the inspiration to enter public office may strike, and you wouldn’t want this detail to derail providing service to your community!
Reference: Kiplinger’s (March 2017) “Paying Taxes for a Hired Caregiver”