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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12675
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I'm going back to work and plan to hire a nanny. Because the

Customer Question

I'm going back to work and plan to hire a nanny. Because the nanny owns her own business (cookie company), she claims she can sell me nanny services and I just pay through her business. Is that true or do I need to make her my employee?? Also, if I pay through her business do I report anything on my taxes? We are MA residents.
Submitted: 2 years ago.
Category: Tax
Customer: replied 2 years ago.
She can even continue to do administrative diaries related to the cookie company while at my house as a nanny.
Customer: replied 2 years ago.
Duties not diaries
Expert:  Lane replied 2 years ago.
So sorry, but she's incorrect.
I would seem logical that since she already HAS a business AND that a business can do more than one thing, that she could just add this as another service she provides.
But THIS relationship is not one where she can name her own location, times, substitute sub contractors, etc. This (by tax code and IRS definition) is an employee relationship.
You are in control of how she spends the day with your kids. She takes the kids on great outings, packs snacks, preps meals, handles melt-downs, and disciplines - all based on YOUR permissions and direction.
You may, in some ways work WITH her, but ultimately you call the shots.
You're are in charge of what time she works, where she goes with your kids, how she spends the day; this makes her an employee. And as any employee, she comes to your home and uses any necessary supplies provided there, from diaper, to strollers, to snacks.
Here's the IRS guidance on this:
In terms of your taxes and reporting, the "nanny tax" is comprised of the combination of taxes you withhold from your employee and the taxes you pay as the employer.
You'll withhold Social Security and Medicare (FICA) and federal and state income taxes from your employee each pay period. You'll also pay a matching portion of FICA, as well as federal and state unemployment insurance taxes.
To get this done, you'll need to get...
ID numbers: You need both the federal and state tax identification number in order to report your nanny taxes. You can get your federal employer identification number (FEIN) from the IRS and use this number to obtain your state identification number from the appropriate tax agency in your state.
Payroll info: You need to accurately calculate your employee's gross pay, calculate the taxes withheld and track the corresponding employer taxes each pay period (use our nanny tax pay calculator to help).
You must provide your nanny with a Form W-2 by the end of January each year
You need to file any required year-end forms with the state, as well as Form W-3 and Form W-2 Copy A with the Social Security Administration
You need to prepare a Schedule H and file it with your federal income tax return
You may want to consider one of the services that do all this for you;(I have no association) as a turnkey service for a fee:
Paying the person as a contractor has garnered LOTS of attention from IRS over the last several years and caused MANY audits, penalties and fines.
Let me know if you have questions ...
Expert:  Lane replied 2 years ago.
If you'd like to talk through this on a phone consult, let me know.
I can point you to some more resources and clarify anything needed.
I'll make the offer for the smallest amount possible.
let me know ...