Tax Tip of the Week
For the week of October 18, 2004

Don’t let the “nanny tax” catch you misbehaving

As year-end approaches, make sure you’re not caught by the so-called “nanny tax.” If you have a household employee, you could be liable to pay state and federal payroll taxes. You might also have to withhold payroll taxes from your employee’s wages or pay them yourself.

First, you must determine whether you have a household employee. Generally, this is someone you hire to work in or around your house. It could be a babysitter, nurse, maid, housekeeper, or gardener. It doesn’t matter whether they work part-time or full-time, or whether you pay them hourly, weekly, or by the job.

But not everyone who works around your house is an employee. For example, if a lawn service sends someone to cut your grass each week, that person is not your employee. As a general rule, workers who bring their own tools, do work for multiple customers, or control when and how they do the work, are not your household employees.

If you have a household employee, you’ll generally be responsible for payroll taxes if you pay that individual more than $1,400 in any year. However, federal unemployment tax kicks in if you pay more than $1,000 to domestic employees in any quarter.

It’s not always easy to tell whether you have a household employee, or whether exceptions apply. If in doubt, don’t hesitate to contact our office.

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