Household Employee

[ILLMAS]

I have a new TP and wants to put the nanny as a household employee for previous years, I have an understanding that you need to make withholdings for SS/MC every time you pay the person correct?  I believe in this case, TP didn't deduct or collect the nanny's share, at this point in time, would be best to just issue a 1099?

 

[Gail in Virginia]

Publication 926 deals with household employees, and it covers this situation:

 

Not withholding the employee's share.    If you prefer to pay your employee's social security and Medicare taxes from your own funds, don't withhold them from your employee's wages. The social security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. However, they aren't counted as social security and Medicare wages or as federal unemployment (FUTA) wages. Report the social security and Medicare taxes that you paid in boxes 4 and 6 of your employee’s Form W-2; also add the taxes to your employee’s wages reported in box 1 of Form W-2.

[Catherine]

One point to note is that in such cases the nanny is usually NOT happy to have to report the extra income.  

Get the client on an employee payroll asap.  Paychex SurePayroll has a nice online service for this, for small money.  I do some in-house and they are annoying - especially because household employees (and their employers!) tend to be lax about reporting time IN but then want to be paid instantly.

[ILLMAS]

Much appreciated, one final questions, would the TP be hit with a penalty for not filing on a timely basis, sort of the penalty when you pay payroll quarterly returns late? 

[Catherine]

Household employees don't have a 941 filing so there might be a small penalty for late-filing a W-2.  All the taxes (federal) are paid on Sch H with the 1040.

However, there might be state tax and unemployment taxes that could have late-filing and late-paying penalties.  In Mass., those tend to be about 1/2 of 1% of the tax due, per month, and therefore usually in the annoying but not hurtful category.