Thank you for your question. Your daughter would need to file a Schedule C with her personal 1040 showing her self-employment income. The gross income that she has received will be reported there as well as her business expenses. Then she will also file a Schedule SE that will show the self-employment tax she is liable for. The payment is either due with the tax return or she can make estimates to the IRS throughout the year to pay the tax. If this is something she will continue to do and she will expect to owe $1000 or more in tax, she will need to make estimates so she doesn't get hit with a failure to make estimate penalty.
If she feels she should have been treated as an employee and not a subcontractor, then she could file a Form 8919 that will report the employer for not classifying the employee correctly and they would have to pay their portion of FICA. However, that may be considered "rocking the boat" and your daughter may not want to do it if she is still their nanny. http://www.irs.gov/pub/irs-pdf/f8919.pdf
Her self-employment tax is figured on 92.35% of her net earnings. Then you take 15.3% of that in a normal year, 13.3% for 2012. Then she will have income tax on top of that.
If you need further clarification, please let me know. I look forward to your response. Stephanie
If that covers the Federal taxes.....will she need to do anything special for the South Carolina taxes as well? Thank you for your help.
She would have to file a SC return and file that as well.
A colleague just brought up that your daughter's employer may be paying the SS and Medicare tax and grossing up your daughters income to cover that. She would be getting the same amount on her paycheck but her W-2 would reflect the gross and the SS and Medicare taxes that were withheld from that grossed up amount.
If the employer has grossed up the wage to cover her SS and Medicare tax, your daughter would only be responsible for the state and federal income taxes.
Let me know if you need further clarification.
I look forward to your response. Stephanie
My daughter's employer (again she is a nanny/babysitter) is not paying anything....there is no W2 .....no taxes taken out. We knew our daughter needs to pay her fair share of taxes and that is where we were puzzled what needs to be done with there is no W2 and no taxes, etc has been taken out.
I understand. Then she will need to report her income on her Schedule C as discussed earlier.
Thanks for your help, we appreciate it greatly!
No problem. I am glad I was able to assist you.