by Homework Solutions.
It’s that time of year, tax time. Questions are starting to pour in from nannies about filing their taxes. Usually, one of two things has happened:
The nanny either didn’t receive a W-2
The nanny realizes that income taxes were not withheld during the year, and now she has a large tax bill
While both of these situations can be uncomfortable, they can be remedied. First, talk to your employer, or former employer to voice your concern. It might be a simple error or misunderstanding that can easily and quickly be fixed. If after speaking with your employer there is still an issue, here are some steps you can take to fix the problem.
I Didn’t Get a W-2
The following are some tips and steps to take.
Form W-2 is due January 31. The IRS specifically asks that you allow the employer until February 15 before you report it missing. The January 31 date is the ‘mail by’ date.
It is February 15 and you still do not have a W-2. As mentioned above, the first step is to speak with the employer. Often the nanny has moved and the employer does not have a valid mailing address. Allow two additional weeks if you needed to update your address for the employer to obtain/generate a replacement.
The employer says they will give you a 1099. Remind the employer that as a nanny you are their employee and are therefore entitled to a Form W-2. The employer is responsible for remitting Social Security and Medicare taxes, paying unemployment insurance, and providing you with a W2. IRS Publication 926 is a point of reference to reinforce this.
If your employer still insists upon providing you a 1099, you will want to use Form 8919 Uncollected Social Security and Medicare Taxes on Wages. Line 1 of this form requires information about your employer that you can pull directly from the Form 1099 they gave you. Your Reason Code is G, and you will need to submit a Form SS-8 Determination of Worker Status (see sample) on or before the date you file your income tax return.
IMPORTANT! Line 1 (f) instructions: Must be the sum of cash wages and employee Social Security and Medicare paid by the employer. (Example: If Cash Wages = $10,000, calculate as Cash Wage plus [Cash Wage * 7.65%], with Gross Wages of $10,765.00). Repeat this on lines 6. STOP THERE! Mark boldly through lines 9 – 13 “SEE ATTACHED STATEMENT”.
Write an ATTACHMENT TO IRS FORM 8919 explaining you were employed full time from <date> to <date> by <Employer’s Name> as a nanny for their children and that you worked in their private home. Note that you were paid Cash Wages of <$$$> NET of Social Security taxes (the CASH wage from your calculation above) and that the employer failed to provide you a Form W-2 as required by the Internal Revenue Code (please see Publication 926). Per IRS instructions, your employers are responsible for the payment of your Social Security and Medicare taxes, and you are responsible for the payment of your income taxes, which you do with Form 1040.
Note that you must use the line 1(f) amount when you report your income. This is because you owe a small amount of income taxes on the Social Security and Medicare taxes that were the employee’s (your) share paid on your behalf by the employer (family).
If you do not provide this written explanation, you may be deemed liable (initially) by the IRS for half of the Social Security and Medicare taxes. You will become an IRS pen pal as you battle to get this corrected! It is important that you always state you were a nanny or household employee working in the family’s private home.
When a Form 4852 or Form 8919 is filed by the former nanny or household employee, the employer will be questioned by the IRS and the IRS will assume responsibility for the collection of employment taxes. A nanny always remains responsible for her income taxes, federal and state if applicable.
If Your Employer Still Refuses to Provide a W-2 or a 1099
The nanny is still responsible for reporting her wages and filing an income tax return even if she did not receive a form W-2. This is accomplished by completing Form 4852 Substitute Form W-2.
Tip! Be very sure that 7(A)(a) is the sum of the gross wages plus the values for Social Security and Medicare Taxes due from the employer. For example: Nanny is paid $2000 per month for 8 months. 7(a) is $17224.00 ($16000 + $1224) The Social Security and Medicare is 7.65% of the gross wages. 7(b) and 7(c) are $16000.
Nannies who use Form 4852 will need to provide the family’s name (both John and Mary Smith), their address and phone number (phone is not required but very helpful). If the nanny has received a Form W-2 from this family in the past, the nanny should report the EIN from the prior form. If not, enter Unavailable or Unknown.
The answer to line 9 of Form 4852 is that 7(a) is the sum of cash wages and employee Social Security and Medicare paid by the employer. 77(b) and 7(c) are cash wages alone.
The answer to line 10 is a brief statement – something to the effect “I worked as a nanny from x date to y date. I was paid at $$$ during the calendar year. I phoned the family and requested the Form W-2 and they refused to provide it”, or a similar BRIEF narrative. It is important that you state you were a nanny or household employee.
The IRS requests that you wait until April 15 to file your return, in the hopes that the family will come around and provide you the correct documentation. The nanny cannot eFile when using a substitute Form W-2. The conventional paper tax return is mailed to the appropriate address.
* When the nanny is forced to use the substitute Form W-2 it is MUCH harder on the employer to get the mess straightened out. The nanny is pretty much done at that point. It is in the employer’s best interest to resolve the problem before it gets that far.*
I Did Get a W-2, but I Just Realized That Income Taxes Were Not Withheld
Nanny employers are not required by law to withhold and remit income taxes on your behalf, although most families choose to do so as a kindness to their employee. If your employer didn’t withhold them in 2019, that means you will need to remit them to the federal, state, and sometimes local government yourself. As 2019 has already come to a close, the amount you owe should be paid with your income tax return filings.
If you would prefer that your employer withhold income taxes each pay period moving forward, speak with them and ask them if they would be willing to add this to the remittance and filing they are already doing for FICA taxes. This will lower your take-home pay (net pay) each pay period, but if done correctly will keep you from owing a large sum at year’s end. Most families who realize that this withholding is important to you are happy to do it, if you ask.
HomeWork Solutions specializes in providing household employers and their tax preparers real solutions for nanny tax compliance. We are nationally recognized experts in the field of household employment taxes, regularly consulted by media such as the New York Times and Wall Street Journal. The opinions and views expressed in this article are those of HomeWork Solutions only and does not necessarily reflect the opinions and views of US Nanny Association.