PLEASE NOTE: To protect your health and safety in response to the threat of the COVID-19 Virus, we are offering our clients the ability to meet with us in person while maintaining social distancing, via telephone or through video conferencing. Please call our office to discuss your options.
Call Our Team Today

IRS stepping up enforcement of “nanny tax”

| Nov 9, 2017 | back taxes or tax debt

Maryland residents may not think much of paying a household worker in cash. However, it may be a mistake to not withhold payroll taxes for those who made more than $2,000 in either 2016 or 2017. While children and parents are exempt from this requirement, others such as maids and gardeners may be subject to the nanny tax. Those who are classified as independent contractors will pay their own taxes at the end of the year.

Homeowners should have household employees fill out a W-4 form to validate their names, addresses and Social Security numbers. Collecting an I-9 form may ensure that a homeowner does not hire an illegal immigrant. W-2, Schedule H and state tax forms may also need to be filled out and sent to the appropriate tax agencies. The IRS will want to see that anyone who has hired a household worker submits FICA and FUTA taxes.

FICA taxes are 15.3 percent of wages and help to pay for Medicare and Social Security. The employer pays half while the other half is withheld from wages earned by an employee. FUTA taxes are unemployment taxes and are 6 percent of the first $7,000 of wages paid to a worker. These amounts will be listed on Schedule H on a person’s 1040 and will be paid when his or her income tax return is filed.

Those who have a back tax debt or who have made a late payment may be contacted by the IRS. If the debt is not resolved in a timely manner, it may result in additional financial penalties as well as wage garnishment and tax liens. An attorney may be able to work with the government on a taxpayer’s behalf to resolve the matter in a timely and favorable manner.