USA Didn't Know About the Nanny Tax

[gtriamy]

I will start off with I am stupid.
My wife and I hired a part time nanny while my wife worked and I was in school. We got some bad advice and assumed that out nanny would be responsible for paying her own taxes. Stupid. Our many wants a w2 now and searching Google shows that at the very least we needed to have been paying her SS and unemployment for the last year. Also, she doesn't work for us anymore.

What do we do? How do we make this right? I'm not looking to get out of anything, I know well have to pay something, but I don't know what and how. Do I apply for an EIN after the fact? Can I send in her SS and unemployment now?

There is a lot of guidance online for smart people unlike me who plan ahead, but I'm not finding a lot for stupid people like me. Help. Just some basic guidance would be helpful--even if it's "get to a tax person immediately".

 

[ColinCPA]

Don't call yourself stupid. I'm sure a lot of household employers screw up on the nanny tax rules. Be glad you are now cognizant to take the appropriate action. You may be okay anyway (see below) other than a late W-2 filing.

Yes, you should apply for an EIN, as you need it to file a Schedule H on your return. You are also required to issue a W-2 if you paid more than $1,900 in wages for the year. Better to get the problem fixed now before you are potentially liable for any continuing underpayment and/or late payroll tax filing penalties.

You are not required to file quarterly payroll returns or withhold income tax on the wages. You do need to properly gross up the employee's wages to account for FICA and Medicare taxes and reflect this on the W-2. I would consult a CPA if you are uncomfortable with calculating this yourself. You will owe the FICA/Medicare, as well as FUTA tax and pay this on your individual return you file in April.

But, depending on what state you are in, you may be responsible for state unemployment taxes as well. For instance, in Michigan, you must file quarterly MESC returns with the state and pay state unemployment tax quarterly, even though you won't be filing federal payroll tax returns. Get this up to date as soon as possible if applicable.

 

[Samir]

I would also seriously look at if this nanny is really an 'employee' or an 'independent contractor'. If she was working for multiple clients as well as some other criteria, she would be responsible for her own taxes and you simply owe her a 1099.