- April 25, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Understanding the Legal Implications of Nanny Income Declaration
My friend [28f] is currently working as a nanny for a single mom. The situation has taken a confusing turn as the employer has suddenly decided to declare paying $13k to the nanny as income. This has raised red flags for my friend, as she never filled out the necessary tax forms such as 1099, I9, or W9, and she never provided her social security number. The legality of how the employer is declaring the nanny income is questionable and my friend is left wondering about the implications.
This sudden change in the employer’s stance is perplexing, especially considering that when my friend was hired, the mom had mentioned that it was a tax-free job. However, now the mom is planning to declare this income without providing my friend with overtime pay or any benefits. In New York State, it is mandated that nannies are entitled to overtime pay if they work over a certain threshold and the employer is responsible for paying their taxes if they earn over $500 per quarter.
Upon further research, it has become apparent that my friend should have been classified as a household employee by the mom, and she should have received a W2 form for tax purposes. However, the mom seems to have her own accountant handling her taxes, leaving my friend in a predicament regarding how to file her taxes accurately. There are looming questions about how much my friend might owe, whether she needs to consider herself as “self-employed,” and the potential consequences of not having a W2 form. It is essential for my friend to understand the penalties she might face in this situation.
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The IRS does not match employers schedule H with the employees 1040.
The IRS is pretty explicit that unless there is some weird circumstance, a nanny is basically always a W2 employee. You can’t just say they are an independent contractor to avoid paying payroll tax. The family is going to get in deeper shit with the IRS than your friend is if they don’t do it by the books.
Sounds like the employer’s accountant found out about the nanny and is trying to fix the employer’s tax issue. Your friend needs to file her taxes on her income. It doesn’t matter if it was supposed to be under the table because paying under the table is illegal. It also sounds like the employer could be reported to the NY state department of labor for unfair labor practices if your friend wants to hunt for a new job.
This is going to go very, very badly for the mom. I would suggest your friend ask for the Employer Identification Number and ask where her W2 is, does the mom know she’s severely late in providing it?? Those penalties are going to suck for mom, the employer portion of the taxes are going to suck even more for mom :/
Nanny family is going to get screwed here a lot worse than your friend. A nanny is a household employee and requires a W2. That means nanny will now have money paid into social security and unemployment too. She should definitely file for unemployment, why not!
For future reference to you and your friend, “tax free job” doesn’t exist. That means your friend was getting paid under the table, i.e. illegally. Unfortunately this arrangement happens a lot for nannies but it doesn’t make it less illegal. And it can mean getting screwed over like this.
Your friend is probably going to have to owe a boat load of taxes and possibly penalties for under-payment of taxes through the year (though perhaps not too bad given the low total income). If that sounds like a shit sandwich of a situation, it is, and your friend should ask the mom to gross up the pay both for this year and the next, and/or find a new job that doesn’t engage in illegal labor practices.
Bottom line is that the mom should have been withholding employee taxes and paying the employer part the entire time your friend was a nanny, but the mom wasn’t in an effort to get cheaper childcare, and currently your friend is getting screwed by the mom going back on this arrangement. I don’t know a lot about labor law esp in NYS but perhaps there’s something more your friend can do if she’s OK with absolutely burning bridges here.
As for the specific tax filing situation, maybe have your friend ask for a W-2 if the mom has an accountant? I know in TurboTax there’s an option for “I don’t have a w-2” so there’s probably a flow for that if your friend doesn’t get one.
The ideal situation here is that your friend gets a w2 from the employer showing accurately how much she was paid (box 1 will be higher than what she took home, as the employer will be grossing up to cover her share of fica taxes).
That’s ideal.
Probably not going to happen. Your friend could report this as w2 income for which she did not get a w2.
Third option, not correct, but more common, is your friend files self employed, claims all the income they received, pays taxes, and ask their employer for more pay to cover the extra taxes this pushed on to your friend.
With the first 2 options she can also report the employer for not properly paying overtime.
Id report the income honestly but be sure not to base it off the 13k figure given to you.. report only what you know you earned
Your friends employer solely mistaken on how this is going to work out for her benefit.
I recommend your friend to do some googling on Nanny Tax. It’s very common for people to hire nanny and pay cash. That is not illegal on the nanny’s part.
You just need to report tax properly at the end.
A lot of burden is on the household employer’s part like registering their employees and pay payroll taxes quarterly.
This isn’t something your friend should worry about. It’s all on the employer to do this right.
Has she reported her taxes yet? It’s easy to see what the impacts are by trying out a hypothetical test case by using a free tax service (freetaxusa.com)
Nanny must pay her taxes.
But she has solid leverage on her employer. Her tax bill is likely under $2K – her employer could be in much worse trouble. They’re not going after the nanny.
“Help me pay my taxes – or I’ll leave and turn you in”
If the employer doesn’t have her SS# I don’t know how they could report the income. She now needs to put together a bill for overtime act. She also needs to tell het her rate has gone up!
The employer here wanted to have it both ways. They wanted a cheap under the table nanny that they could pay less by telling her the income was tax free. But then they also wanted to deduct those illegal payments from their own taxes. The employer is at fault here and the only right thing to do is pay the nanny’s taxes for her.
Nannies cannot be 1099 in the US. They are w2 employees by definition. The mother will get more issues by doing this.
Why doesn’t the nanny just not report anything, at all? If employer didn’t have the SSN then they wouldn’t know who it was anyways
The family is likely trying to claim a childcare credit, which generally requires identifying who provided the care. The form asks for the provider’s EIN/SSN. However, there is an option to check a box stating the provider did not/would not provide it.
We did this once after a home daycare disclosed at tax time that they considered themselves to be informal and did not have an EIN.
The best legal way: Your friends employer fills out a correct w2 and unfucks fica taxes and everything else on their end.
The second best legal way: Your friend follows IRS instructions on how to file a tax return without a w2.
Most common way: Your friend doesn’t file taxes and tells her employer whatever she wants to hear.
I employ my nanny the legal way. It’s not that hard. The employer probably needs to get money out of a FSA and needs proof of employment. Your friend should do her best to file taxes correctly with whatever info she has. She is not self employed. She is an employee with an employer that has not given her a w2.
It doesn’t matter if her employer filed incorrectly. Your friend, the nanny, is a household employee and she can report to the IRS that she never received a W2. She likely won’t owe anything if she only made $13,000, and will get a return.
Sounds like it’s only gonna be a struggle if they continue discussing it, and I’d let the IRS deal with it. Wishing her all the luck! Tell her to make sure she gets legal pay with her next position!
> HOWEVER my friend never filled out a 1099, I9, or W9. She never gave out her social security number. How is this woman declaring her nanny income?
None of these things are a necessary part of the process. The person paying her will list her name and say how much she paid her.
1099 forms aren’t something you fill out. They’re something you receive. And even if you don’t receive one, you still have to claim any income you received.
Tell your friend not to commit tax fraud. It’s a bad idea.
Employer will have to pay nanny taxes and your friend will earn social security on the wages. However, all employment laws in your state are applicable. Take meticulous notes of hours, work for several years, then sue for back pay at the end of employment.
There’s no such thing as a “tax free job”.
Nanny is a household employee, and the employer needs to withhold taxes. On top of that the employer has to pay employees taxes on top of it. They should also carry workers comp.
Your friend should look for another job. The single Mom wants to declare payment for tax credits most likely, but the tax bill for your friend will make her hourly rate worth significantly less.
There is no tax-free job.
If your friend were a contractor, she’d have to pay income tax and a 15.3% payroll tax herself.
However, she’s an employee so in reality she pays income taxes and 7.65% of the payroll tax, and her employer pays 7.65%.
Also, her employer doesn’t decide if she’s a contractor or an employee and she doesn’t decide if she’s a contractor or employee, the IRS does based on their rules. She’s almost certainly an employee.
The right thing for her to do is…her taxes…reflecting the above and with or without a w2. That said, since they are reaching out, tell them you should have gotten a w2 and ask for one first.
Ok please read this.
No matter what your friend should not give her social security number to the mom or accountant until *after* they give her cash that will total the entire amount she will owe if it all gets reported as w2 income. The mom/accountant is trying to deduct the amount they paid her and shift the tax burden onto her. She’ll owe a shit load of taxes plus interest if this all gets reported. Some people are going to disagree with me but the best option for your friend is to put her foot down and say “no, I’m not giving you my social security number, I know exactly what you are doing. Our arrangement was that this was a cash job. If you would like to give me all the cash to cover what I will owe plus the penalties I will give you my social after I receive the money.” And that’s that. She’ll probably have to find another job but that’s better than owing the irs a ton of money. And in the future remember to never give your social security number or sign anything with people who you agree to work for in exchange for cash.
>When she got hired, the mom said this was a tax free job.
Yeah, that’s not how that works. If it’s a job, and you are making income, you are required to report it by law.
>Further researching in NY State, my friend needs to be hired by the “household employer” with a W2 and the mom would obviously need to file as the household employer in order for them to file and pay their taxes.
Or a 1099-NEC, but people are saying the IRS says a Nanny is a W2 so probably a W2. I dunno, don’t have kids.
I was a parent in this situation. I tried to submit the expense on my taxes and Turbotax forced me (or scared me enough) to provide my nanny’s SSN in order to claim the deduction.
So I took the deduction off. Safer for everyone that way.
Friend needs to tell her that if she expects that she (the friend) is paying taxes on this income, then the income needs to start reflecting a wage that would account for paying taxes – and if it’s below the minimum wage (which I mention because 13k is not a lot) then it needs to reach well beyond that.
Remember, an audit would hurt this woman FAR worse than your friend. If this exploded on her and they DID both get audited, your friend would get a bill for likely a three digit or low four digit number for her late taxes (if her whole income is actually close to that $13,000 she can de,duct close to all of that with a standard exemption) and a small interest penalty, and her employer – the woman pulling this shit – would likely get huge fines for tax fraud/evasion, incorrect employee reporting status (not what it’s called but I know you get fined for misclassifying someone as a 1099’d employee when they do not fit the definition of independent contractor), possibly unfair work practices, and so on. Your friend holds the upper hand here, not this woman.
Bitch wants to think she’s getting away with a bait and switch, call her bluff.
Also, just my advice and I’m no lawyer or accountant, but if I were your friend I’d specifically not file taxes if this is their only income. Not sending anything and getting audited for it leaves you with the excuse “yeah I just didn’t do it”, but sending in something and getting audited for it after making knowingly false statements is probably significantly worse.
There is no such thing as a “tax free job”
Your friend is going to owe quite a bit in taxes and her boss is going to get in a lot of trouble. If she doesn’t care about the job, she should report the boss to the IRS and department of labor.
IRS publication 926 is useful for your friend to know what her employer is supposed to be doing for federal taxes, and her state should have an equivalent for state and unemployment taxes. I had (and properly paid) nannies for several years. Its not difficult.
“Tax free job” more like “tax evasion job” and tax evasion is a crime
My bf has had similar problems in the past. It’s why he always uses a tax service when filing and pays extra for the representation in case of being audited. It’s come in handy once already.
If that is the case, your friend could go after the employer for, let’s say, not being given the opportunity to take the appropriate length of breaks within the allotted time in the clock, etc. The employer could have a real shit show on her hands.
Tell the nanny to ask the lady for paystubs or a contract with her signature or she can report the woman to the IRS.
If the mom never issued a 1099 or w-2 she’s going to have some violations coming.
Additionally in most cases, Nannys are W-2 employees, if the mom never withheld SS/medicare and didn’t pay into unemployment, not only is there wage theft /tax fraud here, but there’s also penalties with unemployment.
From a legal perspective, if the mom just figured out she screwed up, that sucks but legally she can do that.
At the same time, she still needs to properly classify the employee and pay the employee appropriately otherwise it’s wage theft and possibly tax fraud.
On a separate note: don’t say you are paying cash under the table then lie to your employee. I think wage theft protections will still take place here. However the employee must file appropriately as having a job where your employer refused to provide the w-2 or 1099.
The mom has to fill out a schedule H on her taxes to declare what she paid and what she withheld.
>When she got hired, the mom said this was a tax free job.
There’s no such thing as a tax free job. You owe taxes on your earnings, whether that’s from working a desk job at Microsoft, driving an uber, doing odd jobs for cash, or even conducting illegal activities like selling drugs. It’s all taxable and there are penalties for not paying taxes.
That said, if this friend only made $13k, she may actually come out ahead if she gets the EITC.