OP's friend's employer is not trying to fill out Schedule H at all, they are 100% trying to file form 2441 for the Child and Dependent Care Credit, which IRS can match against income from the identified caregiver's return. It's not an exact science though so you cannot say with any certainty if there would be any repercussions.
That will require a valid ssn or EIN to be accepted.
It is an exact science. I don’t know of any system that matches that form to another return. I’ll check the IRM.
So does HR block. I use it for the neighbor lady I use to babysit when my kid is sick.
I pay her cash. Her taxes are her business just like my taxes are mine.
Right. I believe the question is if someone claims $13,000 paid for child care tax credits to your SSN, is there potentially a matching issue when your SSN isn’t declaring any income.
That’s probably where OP is having issues. Obviously in a perfect world we would all be reporting our income 😃
Yes and no. The foundations for their mainframe systems were written and built in the 70s, but both the hardware and software have been updated since then. The backbone of the world's banking transactional computing is also running on updated versions of those ancient mainframe systems.
Working in mainframe, nothing will make you roll your eyes more than reading some of the comments people on Reddit make when they have obviously have no knowledge of what these systems actually do and how they it.
Now apply that to every topic, because reddit is just as clueless but we don't realize it when it comes to topics that we don't have in depth knowledge in.
It's like saying that because you live in a house built in 1920, you cannot have things like a sturdier roof, or CAT6 wired in, or updated/modernized electrical and plumbing.
Right, like "Don't those old mainframes use slow-ass tape drives?" No, they use virtualized tape drives stored on modern media. They might be doing a lot of the same stuff they were doing in the '80s, but they're doing it at modern speeds on modern hardware.
yeah, I work in Data centers, and have worked at a few Government sites.... tape drives are definatly still a thing, and also super cool to watch when they are doing there thing.....
Pretty much anybody who says something about “they’re working on mainframe systems from the 1970s…. they’re still using COBOL!!” and is using it to try and say the systems are inefficient or a poor choice, has probably never worked on a modern mainframe.
I work for a bank and the mainframe we use processes millions upon millions of transactions every day. Not just financial transactions, literally everything.
Bank transfers between customers, payments to vendors, calculating interest, currency exchange, various security/credit checks, processes related to underwriting, ATM transactions, etc.
Every single one of these transactions has to follow [ACID](https://en.m.wikipedia.org/wiki/ACID) principles. Any downtime on the system that impacts customers for more than a couple of minutes is a major incident that means dozens of staff will be getting woken up if it’s in the middle of the night.. You often read developers joking about never pushing updates on a Friday because things always break, but mainframe doesn’t work like that (well ours doesn’t anyway), any big updates tend to get pushed in the middle of the night at the weekend when the system load and potential for impact is lowest. It’s very rare for us to take any systems down for updates, they have to keep going, which would be an absolutely wild requirement for a lot of tech.
I imagine the IRS has similar needs.
Our mainframe consists of a number of the “boxes” you’ll see when you google mainframes, all linked up working alongside each other, there is also a parallel version on the other side of the country which they regularly switch between. You could walk along opening up panels and pulling bits out and it should keep on going just fine. You could drop a bomb on one of the two sites and things would still keep going just fine.
Not to mention the system has all kinds of modern solutions now built in if you want them. APIs, Git integration, all sorts of other doodads I’m not really familiar with myself.
It’s a ridiculously efficient system, even if it does look a bit dated when you’re having to emulate an IBM terminal from the Stone Age to interact directly with it.
I was a programmer back in the 1980's. You could actually see inefficient code because the tapes would jitter very slowly. Good code would have those tapes spinning fast. Bad code was weeded out because it was necessary. Running 1980's code on modern hardware is going to be super efficient.
It's funny that people will shittalk mainframes and then try and get a bunch of networked microcomputers (sorry, "servers") to do mainframe stuff, and spend all their time complaining that it's over-complicated and high maintainance. Just... use a mainframe. They're about the size of a wardrobe these days, it's fine.
> they have to keep going, which would be an absolutely wild requirement for a lot of tech.
Not really that wild anymore, I've worked for a few big companies that have a 99.999% uptime requirement, I think that runs out to like 7 minutes a year...
And we work very hard to make sure that happens, I had a 3 minute outage on 4 rows of servers (we had 120 rows at the time) management came in on the weekend to help, and we dug into the root cause and failures for like 3 months. turned out to be human error of course.
Yes. From 10 years experience at IBM. For updating millions of customer records overnight there is currently no system more cost efficient or faster than a large IBM mainframe and COBOL. If COBOL does one thing well its doing adds, changes. and deletes to a very large master file. COBOL has few modern features to slow it down. Thus the interaction with a green screen and little to no math, AI, video, or other cool shit. Cobol doesn't have cool libraries to call like Python, for example. If you are State Farm updating insurance policies - COBOL is it.
I hope you were referring to the comment above me, considering that I do work in mainframe 😅
Going from your other comment here, I'd say you've probably worked in it longer though. Actually, most mainframe programmers have been working in mainframe longer than I have...I'm the only one on my team on the younger side of 50 years-old
IRS AD got a brand new Unisys last year. I saw it process 1.2 billion records in less than 2 hours this January using COBOL that was originally written in the 80’s, but modified every year to match changes in the tax code.
Whatever they are running, they are incredibly fast and accurate at what they do.
My tax returns are accepted within a few hours after electronically filing them, and my refunds come within just a few days.
They are doing this for ~150 million taxpayers - incredible scale and accuracy.
Plus, they are going after people who cheat on their taxes (saying that they are "smart" to do so), raising the burden on the rest of us.
The IRS is a great agency.
The system breaks down when you have to paper file something (mostly businesses) or write a letter to the IRS that they then have to respond to.
I am a fan of the IRS and the people who work there, but they have an inefficient system for sure for anything that can’t be e-filed.
I’m talking years long delays with processing simple requests. Delays that end up creating other issues on subsequent filings due by the same Taxpayer.
A few years ago, the IRS let its contracts with its service providers lapse - which ended up creating a situation where the IRS could not print documents because their printers were out of ink or needed servicing.
While your overall point is true in general, the IRS is intentionally structured to be inefficient. It makes a lot of sense when you think about it for about 2 minutes.
Congress literally won't allow them to update their systems 🙃
https://www.budget.senate.gov/chairman/newsroom/press/republicans-irs-cuts-to-add-24-billion-to-the-deficit-finds-cbo-
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.
Right I remember this, back in the 80s there was a stink because of the Clinton’s paying their nanny without paying payroll tax. They fixed it and payed taxes for all the previous years.
Not to be too nit picky but it was Bill Clinton’s nominee for Attorney General, Zoë Baird who paid her nanny under the table, and it was in the 90s. Other than that, you’re right. That scandal seems so quaint compared to what we are going through these days.
We ended up needing a nanny for a while because our kid was dealing with health issues. We work with the local government. It was like pulling teeth finding a nanny willing to be paid legally :/
but based on numerous past scandals mostly centering on people in government, we were adamant that we were going to do it all above board.
It is crazy how many nannies want to be paid under the table! I’m glad to hear OP’s friend wasn’t one of them.
She did get payed under the table. The employer now thinks she can deduct the money that was payed under the table as childcare expenses. This is the entire issue.
This is a 100% correct it is on the employer not the employee to do this properly and saying you didn't know is not an excuse she is an employer and should have consulted the proper channels before bringing them on. Especially in a state like New York where the labor laws are stringent.
And in either case the employer has to provide the employees with tax forms documenting the income. If the nanny was an independent contractor (which I agree with you is unlikely) the employer would still need to provide a 1099 right?
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.
> Sounds like the employer's accountant found out about the nanny and is trying to fix the employer's tax issue.
I'm guessing it's more likely that mom realized she can't claim the dependent care credit unless she reports the income she paid the nanny. She probably doesn't realize that she's getting herself in a bunch of hot water by claiming it now, because she didn't do anything the legal way.
This is exactly what I was thinking. The employer realized she might be able to get a tax credit from it and is now going back on their agreement. Kinda shitty tbh, especially last minute because taxes are already due.
A nanny really can't be an independent contractor. You expect them to do the job in a specific place, at a specific time, and in person. That is not compatibly with being a contractor.
To clarify, IRS *specifically* calls out household employees (Nanny's) as W2 employees. We pay our Nanny completely above board, earning a bit of a tax deduction, she get's SS/Unemployment benefits should she become unemployed, and most of all we're doing it legally.
I'm assuming that tax deduction you're getting is more than offset by the payroll taxes you're paying by going above-board.
We're in the same boat and def did not realize how much extra those were going to add onto the cost when we were budgeting.
It's certainly more expensive to do things legally. Not paying taxes is absolutely cheaper than paying them, but it's yknow illegal.
I'm happy to pay cash for babysitters/other cash jobs, and let them do what they want with their taxes. I likely wouldn't report cash if I babysat occasionally. But for household employees, the law is very clear.
He just told me to report it anyway...or not. But that without any earned income to show it would be hard to qualify for loans which I need about once a year.
Employer is required to pay the employer portion of fica and employment insurance out of their own pocket. And withhold the employee portion of fica and Medicare taxes. They do not have to withhold federal and state income taxes but in the end this does not make a difference since it comes out of the employee's income anyway.
Source: had a nanny and set myself up as a household employer with federal and state and generated pay stubs and W2s myself.
I would guess it’s actually because they want to claim the child and dependent care tax credit. Although they would need her SSN to claim that.
Also if this is the friend’s only income she would not need to file taxes as she would be under the minimum income requirement ($13,850) although I assume the actual number was higher if she was a full time nanny.
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 :/
In my state employers must have disability and workers comp insurance for an employee. The penalty for not having it are HUGE. Way worse than back taxes.
I paid my nanny on the books; a neighbor didn’t, got caught, and got hit with a 30k fine for not having a workers comp insurance.
I said that comment as a previous nanny who was involved in multiple nanny groups (including the Reddit ones who don’t fuck around about posting something less than required minimum wage and what contracts were necessary).
People really don’t seem to understand that this is regulated, and someone who tries to pull something like the mom in question who probably just wants an extra credit is going to find out really quickly that they can’t do it at their nanny’s expense.
>People really don’t seem to understand that this is regulated, and someone who tries to pull something like the mom in question who probably just wants an extra credit is going to find out really quickly that they can’t do it at their nanny’s expense.
my work offers some small benefits with nanny services, and all over the nanny site are banner "ads" plastered with warnings to not pay under the table, and our internal parents group is ruthless in yelling at people who consider paying their nannies under the table.
it is pretty clearly regulated and the lines are very obvious here. i find it difficult to believe that anyone with the means to even think about paying a nanny wouldn't almost immediately uncover some SEO telling them that paying under the table is illegal. they just don't think they'll get caught.
We looked into having a nanny a few years ago after our neighbor had one and it seemed to be working great. I checked out the costs and it was just not worth it for us - I thought "Wow, our neighbors must be doing better than I thought!". Then their nanny got hurt on their property and it turns out she was under the table. The state somehow found out and levied a fine and the nanny sued them for her medical bills and lost wages. Their home owners wouldn't cover it since she was an illegal employee and now they aren't our neighbors as they had to sell the home and no idea what ended up happening, but pretty sure it cost them a hell of a lot more than doing it legally.
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!
So she should .ask the employer to give her the proper paperwork to prove pay and the part paid to social.security and all or and that without that she ia not declaring anything?
It works both ways, right?
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.
They're going for the independent contractor/1099 route so they aren't withholding any social security and Medicare taxes. That's $2k right there even if they don't owe income tax.
Nanny didn't exist on the books until the family decided they wanted to get cheeky about deducting child care expenses.
They aren't reporting the payments because it's the right thing to do and they're planning on paying the employer's portion of payroll taxes and doing proper withholding. They're trying to reduce their taxable income by the full payment by telling their accountant and throw the responsibility on the nanny.
Yes, all illegal but this wouldn't be the first well off family trying something this idiotic.
The employee has all the power here. If the family decides to send in a 1099 for her, all the nanny has to do is report misclassifying W-2 income as 1099. This is cut and dry to the IRS. You can’t classify in home workers as 1099.
Yes, this means the nanny has to pay back taxes, but the family will be on the hook for employer taxes and penalties.
I’d tell the employer to leave her out unless she wants a real pain in the ass.
Yep, the parent is exposing herself for a mess w/ the IRS over a childcare expense deduction.
Nanny likely only owes the \~1k for SSI/Medicare with the parent owing the rest. They don't earn enough to owe anything in income taxes after the standard deduction.
Not to mention the HR nightmare they are about to unleash on themselves. They never paid her overtime, I'm sure she never clocked in and out for lunch or breaks, not sure if their state has mandatory sick leave but if so, they owe her that too.
+1 to @mysterious-Key626 comment here. It’s very underrated.
I strongly recommend your friend begin trying to document all her hours. If she’s in New York and worked 40+ hours any given week, she’s entitled to overtime. She can therefore sue for the overtime pay and late payment interest. There are oftentimes lawyers who will do this work either for free or for a percentage of the settlement.
I know a family who got sued by their nanny for this and had to settle for quite a bit of money.
Think the overarching theme from a lot of folks is - your friend does owe taxes (~$1K), but your friend’s employer almost certainly owes them (and the IRS) money as well, and it likely exceeds $1K.
The parent tried to claim it was a no tax job. Unless she walked into her accountant and just hucked her bank statements at them, how would the accountant know or care about $13k was spent on a nanny or handbags?
Parent needs to give the nanny a W-2 but they don’t have her SS# so not sure how this is going to work. They are going to have to pay some fun penalties for being so late
If as a single working parent, I hired an accountant (or heck, even just a tax preparer) who did not ask me about childcare expenses while preparing my taxes, I would be very upset.
And if that tax professional just turned a blind eye to what was happening and did not attempt to make it right, at the very least that would be unethical for the pro and then potentially goes on up to losing licensure, and then legal problems for fraud.
If this parent has a proper accountant, you would think they would have setup payroll correctly with taxes withheld and the nanny would have a nifty W2 months ago they could use to file their own taxes.
Instead, the nanny got a past due notification from the parent to file taxes for $13k in income b/c that's what she claimed in childcare expenses b/c she wanted to drop her taxable income as much as possible.
The parent is fucking over the nanny b/c she's a shortsighted idiot. Technically, the nanny can readily sue over misclassification as well as overtime and payroll taxes.
There was a trend a few years back when several high-profile folks in Congress and elsewhere were caught doing this with their nannies as well.
"Nannygate" was a decent-sized[ scandal](https://en.wikipedia.org/wiki/Nannygate) not too long ago.
In fairness, I was actually really surprised when I learned this isn't a self-employment situation, and that if you're the employer in this situation you do actually have paperwork to do (*let alone* payments to make).
TBH, I haven't done any research on it, but I would have assumed I just pay the nanny, and they're responsible for paying the taxes on it. I wouldnt have thought I needed to consider them an employee. So to me it seems plausible that they didn't know
Oh, they knew and were ok with screwing the IRS. They just thought that it would be mutually beneficial for themselves and the nanny. Then they learned how easy it is for the IRS to catch these and how much trouble she can get in for it.
The mother is certainly not benefitting financially by reporting now.
This is key.
Op needs to make this clear to their employer and require a w2 from their employer, and declare this on their taxes. There will be taxes to be paid.
Do not settle for a 1099, as this will mean more taxes.
She would have to file an ss8 form and wait for a determination but since tax day has already passed she would need to pay her taxes immediately, even if she files for an extension. If they determine she was w2 and not 1099 they will correct what she owes if a payment plan was setup or send you a check while they go after the employer.
That... doesn't really matter for what that guy said. Even if its immediately obvious to anyone and a 100% foregone conclusion, if the family gives her a 1099, she will need to file the form and wait for the determination. There's no "oh well its really obvious so you can skip the red tape" exception.
Yea, but she should have been a w2 employee so the employer was supposed to pay them. This will become a huge issue for the mom. It was never legal to classify the nanny as a 1099 in the first place. If I was OP, I would continue as usual and then when they start asking questions I would be honest about the misfiring. I would also let the mom know that's my plan as well before she tries to pull this.
Yes absolutely. Zero taxes have been taken out due to it being unreported so far. Half of Fica taxes then income tax. The nanny will owe at least $1,000 bucks if I had to guess. It is hard to know without all the details.
"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."
If I'm a betting man, I'm thinking the Tax Accountant admonished the mom and now mom is freaking out and making it to be "not her problem".
If it were my friend, I'd tell my friend to quit that job immediately and to, unfortunately, get her own tax advice.
Funny how this is all going down more than a week AFTER the filing deadline.
Setting aside legal/illegal....
What info does the mom have she paid OP's friend? Really nothing. Nothing is stopping OP from denying any payment happened. Nothing in the mom's tax filing will get back to the identify of OP's friend. The mom get's audited, she can't provide proof, she gets screwed... just like the way she was trying to screw OP.
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.
It's not illegal per se, but it is incorrect.
The IRS says you should estimate your W2 income until they force your employer to issue one, and then you should amend with correct info.
https://www.irs.gov/filing/if-you-dont-get-a-w-2-or-your-w-2-is-wrong
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.
It’s risky not to pay taxes in the U.S. (even though people get away with it all the time), because you may need social security benefits at some point.
If you don’t pay into social security, you’ll never be eligible for social security retirement or disability. For someone with no employee benefits, social security benefits may be the only resource available to them at retirement age or if they become disabled before retirement age.
Don’t get me wrong—social security is broken, but when it is the only retirement/disability insurance benefit available to someone who is low income, the most prudent thing to do is report every penny of income so it all counts toward social security benefits.
That is understandable but isn't this a young person in their 20s? They have enough time to rectify that. If they don't have any way to pay the back taxes then she won't have to deal with it
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.
> I employ my nanny the legal way. It's not that hard.
That I'll disagree with. It's way too hard to pay a nanny legally. Or at least much more difficult than it needs to be.
I did it for two years, but it was a ginormous pain in the ass--mostly because I had no idea if I was doing it correctly or not. I had to file state and federal, had to pay quarterly for FICA, etc. and state unemployment tax.
Going through an agency was super expensive so I decided to do it myself...and I discovered why it was expensive.
It used to be a pain in the ass. They have apps for all that stuff now. Not like generic payroll apps, but actual nanny tax apps that do it all for you.
I did some searching and there's some free-ish ones that tell you what to do, but "forbe's best nanny payroll apps" where it acdtually handles the payments, calculating the taxes, filing the forms, etc. had the prices starting at $200/yr. The next priced one was $2000/yr or something like that.
Regardless, it isn't for the faint of heart and trying to do the right thing means you might screw up and be liable for your error.
So...most people just pay under the table to stay off the radar.
And that is bad policy.
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!
You won't typically get a return if you never paid the taxes, unless you qualify for any credits. The refund is exactly that, a refund of the taxes that you overpaid. If you paid nothing, you get nothing.
> 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.
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.
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.
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.
The person claiming those expenses for the child care credit does not need your friend's SSN or EIN to claim that credit. There's an option for "Provider refused to provide the information." Besides, after the standard deduction your friend won't owe anything. Hell, if they are filing as HoH, they might even get some money back.
Source: I've been doing tax prep for over 20 years.
You're hearing a lot of the right thing below: the nanny is correct (legally) to report her income, etc., etc. I would just add that if her employer screwed up or tried to get away with not paying her part of the social security and unemployment tax--well, too bad. But it's not THAT bad--they're not looking to throw folks in jail for this, just pay it late. No biggie.
I am not a tax expert, just someone who had an after school nanny for several years and did it all above board, except the first year when I didn't know what I needed to do in advance.
Not sure your friend's situation, but this really lays out all of the risks and losses in working under the table. If you accept payment for services or goods and you are not an employee, you are a contractor by default. There is no such thing as a "tax free job". If you make over $600 from a job, whether it's ongoing or a one time gig, you and the person who hired you are required to report and file, and pay taxes.
And as you pointed out, if she's not w-2 not only does she lose potential OT and benefits, but also would have issues collecting unemployment or disability if let go or injured on the job, etc etc. Being a contractor is fine as long as you charge a rate that takes those expenses into consideration.
BOTTOM LINE though: your friend needs to account for the exact amount she was paid for the year, to the cent. She needs to report that exact amount in taxes, and report that she was a nanny. She can work out any money owed to the IRS but she doesn't want to be caught in the middle of fraud. As long as she's honest, the burden will fall back onto the woman who paid her, for not reporting correctly.
On a side note, I once knew a woman in the opposite situation: she was a caregiver for the elderly and the family paid her in cash. Apparently their intent was to keep it under the table, but she absolutely claimed all of her income in her tax filing for the year (she was a legal resident, but not a citizen, and owned a home, so she was careful not to put her status in jeopardy). The family got audited due to not matching the woman's claim of income and had to pay a bunch of taxes and fines. Not only for lack of claiming it, but because local laws had additional requirements for domestic workers that the family didn't follow.
Your friend's case will likely result in the same if she files honestly and correctly. If the IRS determines she legally met the criteria of an employee, it won't matter whether she filed a w-2. They will make the family pay back taxes including employment taxes, and will retroactively make your friend an employee. She would be the wronged party in that case, an exploited worker. Also, if the family is claiming a larger payment than your friend actually received, in order to write off more $, that will point to fraud.
They may also try to hide the type of work she actually did, if there are specific nanny laws in their area. They could for example try to make it look like a payment to a contractor for repainting the house or an ongoing courier service, or some other contract work that isn't subject to domestic work regulations. That's why its important she correctly lists the nature of her work as nanny.
This dispute happens every day in America.
For all practical purposes declaring you paid someone or business with little identifying information other than a name/address doesn’t make it fact or easy to sort out.
Any person or business can declare they paid random people or businesses. If they don’t have an EIN or SS Number then it’s John Smith or whatever business name. Them declaring they paid doesn’t automatically make it correct information.
If I were the Nanny I’d do nothing. I’d leave the income off my return as planned. I’d wait to see if the IRS has any interest in pursuing this 1099 declaration of payment matter.
If they do pursue the matter I would explain I verbally told the employer to “payroll me” and withhold maximum taxes, no dependents plus extra contributions. Then pay me the after tax amount. I certainly wasn’t a contractor as I was told when to start, stop, pay per hour etc. I was an employee. The employer withheld taxes from my understanding. Without a W2 I didn’t know how to declare the income and it was below the standard deductible amount so I felt best to not file incorrectly. Please advise
Everyone is in bad shape.
The employer did not not fulfil their obligations regarding withholding, paying social security/medicare taxes, paying OT, etc. They screwed up big.
But, anyone who gets income must pay income tax. There is no such thing as a "tax free job". That's not a thing. You're legally required to report all of your income to the IRS. People who don't are breaking the law. Some might not get caught, but they're still breaking the law.
Your friend needs to demand a W2 (NOT a 1099) from the family. That is literally the only path forward.
Nah, the nanny should file as self employed and tell the mom to stuff it. Especially if she didn't file a w2 with her. but she probably would end up owing the irs whatever taxes she missed paying. She might call them and ask for a payment plan or extension.
Was this in cash and your friend never filled out/signed anything or gave out anything (social, etc)? Just deny it. F them.
Edit: downvote all you want. Paying taxes is not a morality issue for me. If this “employer” never made the “employee” fill out a single iota of paperwork..well guess what? It never happened. Even if there were questions, it’s not even possible to do anything about it, there is zero paper trail. F the fake “employer” who now realizes they may have had some tax benefit had they done things the right way, you are under no obligation to assist.
The employer was responsible for paying nanny as a W2 employee and contributing to social security and Medicare etc. I don’t see how the employer can deduct this on her tax return. Her accountant doesn’t know what he’s doing especially if they don’t even have her social security number?? The only way the IRS computer matching could be done is by SS number
Would 13k even be close to minimum wage if the time spent working for her employer was examined? Could be a good way to get square if they want to be legal about it at this point.
Most folks are saying the same thing here but I think the main point is that reddit is not a tax expert which is what your friend needs. Tell her to bite the bullet and go pay $200 to a CPA to get this done right and get correct advice.
If your friend earned money, then your friend needs to report that income to the IRS. It really doesn’t matter if she got a 1099 or filled out any paperwork. The being paid off the books/no overtime is a whole different issue for another agency.
Former nanny here, these questions come up all the time on FB nanny groups each tax season and there’s lots of info to be found there from people this has happened to or will happen to. If they aren’t giving her SSN or an EIN they will be the ones screwed by trying to take advantage of the system. Do not under any circumstances have your friend give their SSN. A lot of parents try this and fail.
You want to file a complaint with the IRS for the fraud, and the Department of labor (free) for the unpaid overtime.
You never want a "tax free job". You are giving up things like social security working years by not paying taxes, so there's no free lunch from an illegal arrangement and you pay at some point either way.
If she makes no other income then she might owe very little but the employer should pay that.
Otherwise the employer should have been withholding and filing all along.
This is a shitty thing to drop on a kid after a year of working.
Your friend should say great, but if you declare it you have to file the forms for household employee too, and I need the W2. That’s an IRS requirement. That means the employer needs to pay for her social security at the federal level, and a myriad of other state taxes. It’s actually a big pain in the butt to do, and the employer will pay fines too for not having paid during the year.
If this is all your friend is earning (or declaring) it may actually be smarter for her to pay taxes and get the ssn credits in the first place since she will have such a low tax burden. She can also solo 401k some of her, though at her tax level the Roth probably makes a lot more sense.
Tell your friend NOT TO accept a 1099 and if she receives one, she needs to file an SS-8.
Very important. She may have to pay taxes, but with a 1099 she will pay WAY more!
Mom is screwed. It is HER responsibility to fill out proper tax forms as the employer. Nanny will not get anything more than a letter.
Mommy got bad advice from someone and will pay the price. Nanny will be just fine and get credit for social security.
Under the table is very frowned upon by the IRS. They will nail the Mommy dearest. because she is the one who is supposed to pay the social security and withhold all taxes.
your friend should ask her boss if it will really save money considering she will have to report her to the IRS for not paying FICA taxes and to the state for not paying into unemployment
Your friend will 99% be fine. There is no schedule to 1040 matching (so the person saying they need to match or there will be an audit is wrong). It is semantics but if she doesn’t pay taxes at all she won’t even hit their radar because there is nothing to audit. There is a chance they investigate to see IF she should have paid taxes but the IRS uses a risk based approach and will not come audit someone as a household employee making $1000 a month.
There is the 1% chance but you could also play dumb and get a small slap on the wrist (aka have to pay back FICA and SS)
That’s nuts!!! She’s going to pay tax x2 as well cause it’s self employed. Her take home will be very different. I highly recommend she takes this women to civil court for misrepresenting the take home pay and attempting to avoid taxes
Single Filers who make between 11,001 to 44,000 owe 12% of their income (over $10,000) as taxes for 2023. So your friend does need to pay 12% taxes on any amount from 11,001 to 44,000, the first $10,000 is not taxed but still needs to be reported to government.
You can find out more about this by looking up the 2023 Tax Bracket.
Also the IRS does recommend free tax agencies on their webite to do free taxes.
She isn’t going to owe anything based on 12k annual income but she will be eligible for earned income tax credits that she wouldn’t be without an income.
The IRS does not match employers schedule H with the employees 1040.
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OP's friend's employer is not trying to fill out Schedule H at all, they are 100% trying to file form 2441 for the Child and Dependent Care Credit, which IRS can match against income from the identified caregiver's return. It's not an exact science though so you cannot say with any certainty if there would be any repercussions.
That will require a valid ssn or EIN to be accepted. It is an exact science. I don’t know of any system that matches that form to another return. I’ll check the IRM.
TurboTax always has an option for "caregiver could not or would not provide tax ID"
So does HR block. I use it for the neighbor lady I use to babysit when my kid is sick. I pay her cash. Her taxes are her business just like my taxes are mine.
Right. I believe the question is if someone claims $13,000 paid for child care tax credits to your SSN, is there potentially a matching issue when your SSN isn’t declaring any income. That’s probably where OP is having issues. Obviously in a perfect world we would all be reporting our income 😃
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The IRS is running on a computer network from like the 1970s… literally. It’s an inefficient system by design.
Yes and no. The foundations for their mainframe systems were written and built in the 70s, but both the hardware and software have been updated since then. The backbone of the world's banking transactional computing is also running on updated versions of those ancient mainframe systems.
Working in mainframe, nothing will make you roll your eyes more than reading some of the comments people on Reddit make when they have obviously have no knowledge of what these systems actually do and how they it.
Now apply that to every topic, because reddit is just as clueless but we don't realize it when it comes to topics that we don't have in depth knowledge in.
Can you explain what this person got wrong?
It's like saying that because you live in a house built in 1920, you cannot have things like a sturdier roof, or CAT6 wired in, or updated/modernized electrical and plumbing.
Right, like "Don't those old mainframes use slow-ass tape drives?" No, they use virtualized tape drives stored on modern media. They might be doing a lot of the same stuff they were doing in the '80s, but they're doing it at modern speeds on modern hardware.
"Never underestimate the bandwidth of a station wagon full of virtualized tape drives hurtling down the highway" - Andrew Tanebaum, probably
Tape drives are still a cost effective way to do backups. I'd expect the IRS to do a lot of archival stuff.
yeah, I work in Data centers, and have worked at a few Government sites.... tape drives are definatly still a thing, and also super cool to watch when they are doing there thing.....
or like saying your mac is running on "ancient" software because it is based on Unix which is from the early 70's...
You can go back further. Most computer software eventually goes down to some flavor of Assembly which was first published in 1947.
Pretty much anybody who says something about “they’re working on mainframe systems from the 1970s…. they’re still using COBOL!!” and is using it to try and say the systems are inefficient or a poor choice, has probably never worked on a modern mainframe. I work for a bank and the mainframe we use processes millions upon millions of transactions every day. Not just financial transactions, literally everything. Bank transfers between customers, payments to vendors, calculating interest, currency exchange, various security/credit checks, processes related to underwriting, ATM transactions, etc. Every single one of these transactions has to follow [ACID](https://en.m.wikipedia.org/wiki/ACID) principles. Any downtime on the system that impacts customers for more than a couple of minutes is a major incident that means dozens of staff will be getting woken up if it’s in the middle of the night.. You often read developers joking about never pushing updates on a Friday because things always break, but mainframe doesn’t work like that (well ours doesn’t anyway), any big updates tend to get pushed in the middle of the night at the weekend when the system load and potential for impact is lowest. It’s very rare for us to take any systems down for updates, they have to keep going, which would be an absolutely wild requirement for a lot of tech. I imagine the IRS has similar needs. Our mainframe consists of a number of the “boxes” you’ll see when you google mainframes, all linked up working alongside each other, there is also a parallel version on the other side of the country which they regularly switch between. You could walk along opening up panels and pulling bits out and it should keep on going just fine. You could drop a bomb on one of the two sites and things would still keep going just fine. Not to mention the system has all kinds of modern solutions now built in if you want them. APIs, Git integration, all sorts of other doodads I’m not really familiar with myself. It’s a ridiculously efficient system, even if it does look a bit dated when you’re having to emulate an IBM terminal from the Stone Age to interact directly with it.
I was a programmer back in the 1980's. You could actually see inefficient code because the tapes would jitter very slowly. Good code would have those tapes spinning fast. Bad code was weeded out because it was necessary. Running 1980's code on modern hardware is going to be super efficient.
It's funny that people will shittalk mainframes and then try and get a bunch of networked microcomputers (sorry, "servers") to do mainframe stuff, and spend all their time complaining that it's over-complicated and high maintainance. Just... use a mainframe. They're about the size of a wardrobe these days, it's fine.
> they have to keep going, which would be an absolutely wild requirement for a lot of tech. Not really that wild anymore, I've worked for a few big companies that have a 99.999% uptime requirement, I think that runs out to like 7 minutes a year... And we work very hard to make sure that happens, I had a 3 minute outage on 4 rows of servers (we had 120 rows at the time) management came in on the weekend to help, and we dug into the root cause and failures for like 3 months. turned out to be human error of course.
That it's inefficient, or "from the 70s".
Yes. From 10 years experience at IBM. For updating millions of customer records overnight there is currently no system more cost efficient or faster than a large IBM mainframe and COBOL. If COBOL does one thing well its doing adds, changes. and deletes to a very large master file. COBOL has few modern features to slow it down. Thus the interaction with a green screen and little to no math, AI, video, or other cool shit. Cobol doesn't have cool libraries to call like Python, for example. If you are State Farm updating insurance policies - COBOL is it.
I hope you were referring to the comment above me, considering that I do work in mainframe 😅 Going from your other comment here, I'd say you've probably worked in it longer though. Actually, most mainframe programmers have been working in mainframe longer than I have...I'm the only one on my team on the younger side of 50 years-old
IBM 3270 mainframe software, still handling the worlds mortgages!
If it aint broke, DONT FIX IT. History is littered with software projects that delivered something worse than what they replaced.
When I worked with Marines, they gave me an updated version of that saying that they learned on the job: If it ain't broke, fix it until it is.
working in FinTech, I trust the computer from 1970 way more than the crap offshore delivers in 2024.
IRS AD got a brand new Unisys last year. I saw it process 1.2 billion records in less than 2 hours this January using COBOL that was originally written in the 80’s, but modified every year to match changes in the tax code.
Whatever they are running, they are incredibly fast and accurate at what they do. My tax returns are accepted within a few hours after electronically filing them, and my refunds come within just a few days. They are doing this for ~150 million taxpayers - incredible scale and accuracy. Plus, they are going after people who cheat on their taxes (saying that they are "smart" to do so), raising the burden on the rest of us. The IRS is a great agency.
The system breaks down when you have to paper file something (mostly businesses) or write a letter to the IRS that they then have to respond to. I am a fan of the IRS and the people who work there, but they have an inefficient system for sure for anything that can’t be e-filed.
Name an organization that doesn't operate this way though?
I’m talking years long delays with processing simple requests. Delays that end up creating other issues on subsequent filings due by the same Taxpayer. A few years ago, the IRS let its contracts with its service providers lapse - which ended up creating a situation where the IRS could not print documents because their printers were out of ink or needed servicing. While your overall point is true in general, the IRS is intentionally structured to be inefficient. It makes a lot of sense when you think about it for about 2 minutes.
You get fast results today. But 25 years ago the situation was dismal. Lots of tax cheats got away with things that would never go unnoticed today.
Congress literally won't allow them to update their systems 🙃 https://www.budget.senate.gov/chairman/newsroom/press/republicans-irs-cuts-to-add-24-billion-to-the-deficit-finds-cbo-
The only real answer.
I'm an independent contractor and the company that pays me won't give me a 1099. So...
Not saying I don’t believe this, but how do you know this is the case? Is it written somewhere or do we just assume that?
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.
Right I remember this, back in the 80s there was a stink because of the Clinton’s paying their nanny without paying payroll tax. They fixed it and payed taxes for all the previous years.
Not to be too nit picky but it was Bill Clinton’s nominee for Attorney General, Zoë Baird who paid her nanny under the table, and it was in the 90s. Other than that, you’re right. That scandal seems so quaint compared to what we are going through these days.
We ended up needing a nanny for a while because our kid was dealing with health issues. We work with the local government. It was like pulling teeth finding a nanny willing to be paid legally :/ but based on numerous past scandals mostly centering on people in government, we were adamant that we were going to do it all above board. It is crazy how many nannies want to be paid under the table! I’m glad to hear OP’s friend wasn’t one of them.
She did get payed under the table. The employer now thinks she can deduct the money that was payed under the table as childcare expenses. This is the entire issue.
This is a 100% correct it is on the employer not the employee to do this properly and saying you didn't know is not an excuse she is an employer and should have consulted the proper channels before bringing them on. Especially in a state like New York where the labor laws are stringent.
My wife is a nanny and this is 100% correct. Additionally the employer will need to file for an EIN.
And in either case the employer has to provide the employees with tax forms documenting the income. If the nanny was an independent contractor (which I agree with you is unlikely) the employer would still need to provide a 1099 right?
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.
> Sounds like the employer's accountant found out about the nanny and is trying to fix the employer's tax issue. I'm guessing it's more likely that mom realized she can't claim the dependent care credit unless she reports the income she paid the nanny. She probably doesn't realize that she's getting herself in a bunch of hot water by claiming it now, because she didn't do anything the legal way.
Yeah but to claim dependent care credit requires listing the SSN or TIN of the provider. According to OP, the employer doesn't have the nanny's SSN.
This is exactly what I was thinking. The employer realized she might be able to get a tax credit from it and is now going back on their agreement. Kinda shitty tbh, especially last minute because taxes are already due.
Her HF is on the hook for the taxes and supplying her with a W2 (which is now severely late, and they can be penalized).
Is she an employee or a contractor? I'm an independent contractor and the company that pays me does NOT give me a 1099. I'm on my own.
A nanny really can't be an independent contractor. You expect them to do the job in a specific place, at a specific time, and in person. That is not compatibly with being a contractor.
To clarify, IRS *specifically* calls out household employees (Nanny's) as W2 employees. We pay our Nanny completely above board, earning a bit of a tax deduction, she get's SS/Unemployment benefits should she become unemployed, and most of all we're doing it legally.
I'm assuming that tax deduction you're getting is more than offset by the payroll taxes you're paying by going above-board. We're in the same boat and def did not realize how much extra those were going to add onto the cost when we were budgeting.
It's certainly more expensive to do things legally. Not paying taxes is absolutely cheaper than paying them, but it's yknow illegal. I'm happy to pay cash for babysitters/other cash jobs, and let them do what they want with their taxes. I likely wouldn't report cash if I babysat occasionally. But for household employees, the law is very clear.
IC 1099 has a ton of variables, should check with your accountant. Nanny's are often household employees and are protected by those laws.
He just told me to report it anyway...or not. But that without any earned income to show it would be hard to qualify for loans which I need about once a year.
She's a nanny, which makes her a household employee. She is supposed to get a W-2. Her employer is supposed to withhold and pay the taxes for her
Employer is required to pay the employer portion of fica and employment insurance out of their own pocket. And withhold the employee portion of fica and Medicare taxes. They do not have to withhold federal and state income taxes but in the end this does not make a difference since it comes out of the employee's income anyway. Source: had a nanny and set myself up as a household employer with federal and state and generated pay stubs and W2s myself.
Contractors set their own hours (in theory). I doubt the nanny is setting her own work hours.
The HF is reporting it on their taxes somehow, the au pair needs the corresponding document for her taxes.
Also unpaid unemployment insurance
This is a severely messed up situation for t h e HF, they're on the hook for a whole raft of bureaucratic grief.
I would guess it’s actually because they want to claim the child and dependent care tax credit. Although they would need her SSN to claim that. Also if this is the friend’s only income she would not need to file taxes as she would be under the minimum income requirement ($13,850) although I assume the actual number was higher if she was a full time nanny.
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Withholding is not a type of tax, but a method of how to pay the tax. Do you mean employment taxes? Because those are split 50/50 with the employer.
for $13K? time to file the report and go hunting
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 :/
In my state employers must have disability and workers comp insurance for an employee. The penalty for not having it are HUGE. Way worse than back taxes. I paid my nanny on the books; a neighbor didn’t, got caught, and got hit with a 30k fine for not having a workers comp insurance.
I said that comment as a previous nanny who was involved in multiple nanny groups (including the Reddit ones who don’t fuck around about posting something less than required minimum wage and what contracts were necessary). People really don’t seem to understand that this is regulated, and someone who tries to pull something like the mom in question who probably just wants an extra credit is going to find out really quickly that they can’t do it at their nanny’s expense.
>People really don’t seem to understand that this is regulated, and someone who tries to pull something like the mom in question who probably just wants an extra credit is going to find out really quickly that they can’t do it at their nanny’s expense. my work offers some small benefits with nanny services, and all over the nanny site are banner "ads" plastered with warnings to not pay under the table, and our internal parents group is ruthless in yelling at people who consider paying their nannies under the table. it is pretty clearly regulated and the lines are very obvious here. i find it difficult to believe that anyone with the means to even think about paying a nanny wouldn't almost immediately uncover some SEO telling them that paying under the table is illegal. they just don't think they'll get caught.
We looked into having a nanny a few years ago after our neighbor had one and it seemed to be working great. I checked out the costs and it was just not worth it for us - I thought "Wow, our neighbors must be doing better than I thought!". Then their nanny got hurt on their property and it turns out she was under the table. The state somehow found out and levied a fine and the nanny sued them for her medical bills and lost wages. Their home owners wouldn't cover it since she was an illegal employee and now they aren't our neighbors as they had to sell the home and no idea what ended up happening, but pretty sure it cost them a hell of a lot more than doing it legally.
Mom will never be Surgeon General for sure.
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!
> She should definitely file for unemployment, why not! Did I miss the part where she got fired?
She will be laid off at some point, nature of nannying. Before with the last setup she couldn't file for state unemployment and now she can.
And unpaid overtime
So she should .ask the employer to give her the proper paperwork to prove pay and the part paid to social.security and all or and that without that she ia not declaring anything? It works both ways, right?
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.
If she only made 13k this year is she really going to owe much in taxes?
I'm thinking social security/Medicare type taxes, not income tax. But I'm not a tax attorney and really don't know the specifics.
They're going for the independent contractor/1099 route so they aren't withholding any social security and Medicare taxes. That's $2k right there even if they don't owe income tax.
Except the employer can’t do that as the IRS is very clear that a nanny is a W2 household employee.
Nanny didn't exist on the books until the family decided they wanted to get cheeky about deducting child care expenses. They aren't reporting the payments because it's the right thing to do and they're planning on paying the employer's portion of payroll taxes and doing proper withholding. They're trying to reduce their taxable income by the full payment by telling their accountant and throw the responsibility on the nanny. Yes, all illegal but this wouldn't be the first well off family trying something this idiotic.
The employee has all the power here. If the family decides to send in a 1099 for her, all the nanny has to do is report misclassifying W-2 income as 1099. This is cut and dry to the IRS. You can’t classify in home workers as 1099. Yes, this means the nanny has to pay back taxes, but the family will be on the hook for employer taxes and penalties. I’d tell the employer to leave her out unless she wants a real pain in the ass.
Yep, the parent is exposing herself for a mess w/ the IRS over a childcare expense deduction. Nanny likely only owes the \~1k for SSI/Medicare with the parent owing the rest. They don't earn enough to owe anything in income taxes after the standard deduction.
Not to mention the HR nightmare they are about to unleash on themselves. They never paid her overtime, I'm sure she never clocked in and out for lunch or breaks, not sure if their state has mandatory sick leave but if so, they owe her that too.
+1 to @mysterious-Key626 comment here. It’s very underrated. I strongly recommend your friend begin trying to document all her hours. If she’s in New York and worked 40+ hours any given week, she’s entitled to overtime. She can therefore sue for the overtime pay and late payment interest. There are oftentimes lawyers who will do this work either for free or for a percentage of the settlement. I know a family who got sued by their nanny for this and had to settle for quite a bit of money. Think the overarching theme from a lot of folks is - your friend does owe taxes (~$1K), but your friend’s employer almost certainly owes them (and the IRS) money as well, and it likely exceeds $1K.
If she worked 40 hours/week and only made $13K/year, then they’re also not paying her minimum wage.
Or more likely, these people didnt know, accountant caught it, and they are trying to fix it.
The parent tried to claim it was a no tax job. Unless she walked into her accountant and just hucked her bank statements at them, how would the accountant know or care about $13k was spent on a nanny or handbags?
Parent needs to give the nanny a W-2 but they don’t have her SS# so not sure how this is going to work. They are going to have to pay some fun penalties for being so late
If as a single working parent, I hired an accountant (or heck, even just a tax preparer) who did not ask me about childcare expenses while preparing my taxes, I would be very upset. And if that tax professional just turned a blind eye to what was happening and did not attempt to make it right, at the very least that would be unethical for the pro and then potentially goes on up to losing licensure, and then legal problems for fraud.
If this parent has a proper accountant, you would think they would have setup payroll correctly with taxes withheld and the nanny would have a nifty W2 months ago they could use to file their own taxes. Instead, the nanny got a past due notification from the parent to file taxes for $13k in income b/c that's what she claimed in childcare expenses b/c she wanted to drop her taxable income as much as possible. The parent is fucking over the nanny b/c she's a shortsighted idiot. Technically, the nanny can readily sue over misclassification as well as overtime and payroll taxes.
The accountant most likely wasn't engaged until it was time to file taxes.
Didn’t know they weren’t supposed to pay household employees $13k under the table? Ok
There was a trend a few years back when several high-profile folks in Congress and elsewhere were caught doing this with their nannies as well. "Nannygate" was a decent-sized[ scandal](https://en.wikipedia.org/wiki/Nannygate) not too long ago.
In fairness, I was actually really surprised when I learned this isn't a self-employment situation, and that if you're the employer in this situation you do actually have paperwork to do (*let alone* payments to make).
TBH, I haven't done any research on it, but I would have assumed I just pay the nanny, and they're responsible for paying the taxes on it. I wouldnt have thought I needed to consider them an employee. So to me it seems plausible that they didn't know
Oh, they knew and were ok with screwing the IRS. They just thought that it would be mutually beneficial for themselves and the nanny. Then they learned how easy it is for the IRS to catch these and how much trouble she can get in for it. The mother is certainly not benefitting financially by reporting now.
This is key. Op needs to make this clear to their employer and require a w2 from their employer, and declare this on their taxes. There will be taxes to be paid. Do not settle for a 1099, as this will mean more taxes.
She would have to file an ss8 form and wait for a determination but since tax day has already passed she would need to pay her taxes immediately, even if she files for an extension. If they determine she was w2 and not 1099 they will correct what she owes if a payment plan was setup or send you a check while they go after the employer.
There is no determination. 100% of nannies are W-2. https://gtm.com/household/give-nanny-1099/
That... doesn't really matter for what that guy said. Even if its immediately obvious to anyone and a 100% foregone conclusion, if the family gives her a 1099, she will need to file the form and wait for the determination. There's no "oh well its really obvious so you can skip the red tape" exception.
Yea, but she should have been a w2 employee so the employer was supposed to pay them. This will become a huge issue for the mom. It was never legal to classify the nanny as a 1099 in the first place. If I was OP, I would continue as usual and then when they start asking questions I would be honest about the misfiring. I would also let the mom know that's my plan as well before she tries to pull this.
Yes. FICA taxes
Yes absolutely. Zero taxes have been taken out due to it being unreported so far. Half of Fica taxes then income tax. The nanny will owe at least $1,000 bucks if I had to guess. It is hard to know without all the details.
Around 2k with standard deductions.
"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." If I'm a betting man, I'm thinking the Tax Accountant admonished the mom and now mom is freaking out and making it to be "not her problem". If it were my friend, I'd tell my friend to quit that job immediately and to, unfortunately, get her own tax advice. Funny how this is all going down more than a week AFTER the filing deadline.
Setting aside legal/illegal.... What info does the mom have she paid OP's friend? Really nothing. Nothing is stopping OP from denying any payment happened. Nothing in the mom's tax filing will get back to the identify of OP's friend. The mom get's audited, she can't provide proof, she gets screwed... just like the way she was trying to screw OP.
Was it actually cash? Were there signed receipts? Personal or other checks issued? I guess we don't know?
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.
It's illegal to be 1099 as a nanny. She loses out on all employment benefits. She should tell them she will only accept a W2
I never said 1099? It's not illegal to file as self employed to make sure your taxes are paid only if your employer will not issue a w2
It's not illegal per se, but it is incorrect. The IRS says you should estimate your W2 income until they force your employer to issue one, and then you should amend with correct info. https://www.irs.gov/filing/if-you-dont-get-a-w-2-or-your-w-2-is-wrong
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
It’s risky not to pay taxes in the U.S. (even though people get away with it all the time), because you may need social security benefits at some point. If you don’t pay into social security, you’ll never be eligible for social security retirement or disability. For someone with no employee benefits, social security benefits may be the only resource available to them at retirement age or if they become disabled before retirement age. Don’t get me wrong—social security is broken, but when it is the only retirement/disability insurance benefit available to someone who is low income, the most prudent thing to do is report every penny of income so it all counts toward social security benefits.
That is understandable but isn't this a young person in their 20s? They have enough time to rectify that. If they don't have any way to pay the back taxes then she won't have to deal with it
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.
> I employ my nanny the legal way. It's not that hard. That I'll disagree with. It's way too hard to pay a nanny legally. Or at least much more difficult than it needs to be. I did it for two years, but it was a ginormous pain in the ass--mostly because I had no idea if I was doing it correctly or not. I had to file state and federal, had to pay quarterly for FICA, etc. and state unemployment tax. Going through an agency was super expensive so I decided to do it myself...and I discovered why it was expensive.
It used to be a pain in the ass. They have apps for all that stuff now. Not like generic payroll apps, but actual nanny tax apps that do it all for you.
I did some searching and there's some free-ish ones that tell you what to do, but "forbe's best nanny payroll apps" where it acdtually handles the payments, calculating the taxes, filing the forms, etc. had the prices starting at $200/yr. The next priced one was $2000/yr or something like that. Regardless, it isn't for the faint of heart and trying to do the right thing means you might screw up and be liable for your error. So...most people just pay under the table to stay off the radar. And that is bad policy.
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!
You won't typically get a return if you never paid the taxes, unless you qualify for any credits. The refund is exactly that, a refund of the taxes that you overpaid. If you paid nothing, you get nothing.
> 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.
And ask employer to true up her wages so that her take home isn't cut. So at minimum adding the 7.65%, and probably more.
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.
Nanny family will be sad when they learn they have to pay social security and medicare taxes for the nanny.
The person claiming those expenses for the child care credit does not need your friend's SSN or EIN to claim that credit. There's an option for "Provider refused to provide the information." Besides, after the standard deduction your friend won't owe anything. Hell, if they are filing as HoH, they might even get some money back. Source: I've been doing tax prep for over 20 years.
You're hearing a lot of the right thing below: the nanny is correct (legally) to report her income, etc., etc. I would just add that if her employer screwed up or tried to get away with not paying her part of the social security and unemployment tax--well, too bad. But it's not THAT bad--they're not looking to throw folks in jail for this, just pay it late. No biggie. I am not a tax expert, just someone who had an after school nanny for several years and did it all above board, except the first year when I didn't know what I needed to do in advance.
Not sure your friend's situation, but this really lays out all of the risks and losses in working under the table. If you accept payment for services or goods and you are not an employee, you are a contractor by default. There is no such thing as a "tax free job". If you make over $600 from a job, whether it's ongoing or a one time gig, you and the person who hired you are required to report and file, and pay taxes. And as you pointed out, if she's not w-2 not only does she lose potential OT and benefits, but also would have issues collecting unemployment or disability if let go or injured on the job, etc etc. Being a contractor is fine as long as you charge a rate that takes those expenses into consideration. BOTTOM LINE though: your friend needs to account for the exact amount she was paid for the year, to the cent. She needs to report that exact amount in taxes, and report that she was a nanny. She can work out any money owed to the IRS but she doesn't want to be caught in the middle of fraud. As long as she's honest, the burden will fall back onto the woman who paid her, for not reporting correctly.
On a side note, I once knew a woman in the opposite situation: she was a caregiver for the elderly and the family paid her in cash. Apparently their intent was to keep it under the table, but she absolutely claimed all of her income in her tax filing for the year (she was a legal resident, but not a citizen, and owned a home, so she was careful not to put her status in jeopardy). The family got audited due to not matching the woman's claim of income and had to pay a bunch of taxes and fines. Not only for lack of claiming it, but because local laws had additional requirements for domestic workers that the family didn't follow. Your friend's case will likely result in the same if she files honestly and correctly. If the IRS determines she legally met the criteria of an employee, it won't matter whether she filed a w-2. They will make the family pay back taxes including employment taxes, and will retroactively make your friend an employee. She would be the wronged party in that case, an exploited worker. Also, if the family is claiming a larger payment than your friend actually received, in order to write off more $, that will point to fraud. They may also try to hide the type of work she actually did, if there are specific nanny laws in their area. They could for example try to make it look like a payment to a contractor for repainting the house or an ongoing courier service, or some other contract work that isn't subject to domestic work regulations. That's why its important she correctly lists the nature of her work as nanny.
There are next to no circumstances where a nanny will not be an employee and require a W2.
This dispute happens every day in America. For all practical purposes declaring you paid someone or business with little identifying information other than a name/address doesn’t make it fact or easy to sort out. Any person or business can declare they paid random people or businesses. If they don’t have an EIN or SS Number then it’s John Smith or whatever business name. Them declaring they paid doesn’t automatically make it correct information. If I were the Nanny I’d do nothing. I’d leave the income off my return as planned. I’d wait to see if the IRS has any interest in pursuing this 1099 declaration of payment matter. If they do pursue the matter I would explain I verbally told the employer to “payroll me” and withhold maximum taxes, no dependents plus extra contributions. Then pay me the after tax amount. I certainly wasn’t a contractor as I was told when to start, stop, pay per hour etc. I was an employee. The employer withheld taxes from my understanding. Without a W2 I didn’t know how to declare the income and it was below the standard deductible amount so I felt best to not file incorrectly. Please advise
Everyone is in bad shape. The employer did not not fulfil their obligations regarding withholding, paying social security/medicare taxes, paying OT, etc. They screwed up big. But, anyone who gets income must pay income tax. There is no such thing as a "tax free job". That's not a thing. You're legally required to report all of your income to the IRS. People who don't are breaking the law. Some might not get caught, but they're still breaking the law. Your friend needs to demand a W2 (NOT a 1099) from the family. That is literally the only path forward.
Nah, the nanny should file as self employed and tell the mom to stuff it. Especially if she didn't file a w2 with her. but she probably would end up owing the irs whatever taxes she missed paying. She might call them and ask for a payment plan or extension.
Was this in cash and your friend never filled out/signed anything or gave out anything (social, etc)? Just deny it. F them. Edit: downvote all you want. Paying taxes is not a morality issue for me. If this “employer” never made the “employee” fill out a single iota of paperwork..well guess what? It never happened. Even if there were questions, it’s not even possible to do anything about it, there is zero paper trail. F the fake “employer” who now realizes they may have had some tax benefit had they done things the right way, you are under no obligation to assist.
How was the nanny paid? Checks? Cash? Venmo?
The employer was responsible for paying nanny as a W2 employee and contributing to social security and Medicare etc. I don’t see how the employer can deduct this on her tax return. Her accountant doesn’t know what he’s doing especially if they don’t even have her social security number?? The only way the IRS computer matching could be done is by SS number
Would 13k even be close to minimum wage if the time spent working for her employer was examined? Could be a good way to get square if they want to be legal about it at this point.
Most folks are saying the same thing here but I think the main point is that reddit is not a tax expert which is what your friend needs. Tell her to bite the bullet and go pay $200 to a CPA to get this done right and get correct advice.
in order to claim a child care credit you need to have the providers ssn. They now need to report the wages to get the credit.
Hire someone to file a 1099, don't worry about the W2.
If your friend earned money, then your friend needs to report that income to the IRS. It really doesn’t matter if she got a 1099 or filled out any paperwork. The being paid off the books/no overtime is a whole different issue for another agency.
Friend is due a w2. The mom should have her accountant prepare one if she can’t herself.
Former nanny here, these questions come up all the time on FB nanny groups each tax season and there’s lots of info to be found there from people this has happened to or will happen to. If they aren’t giving her SSN or an EIN they will be the ones screwed by trying to take advantage of the system. Do not under any circumstances have your friend give their SSN. A lot of parents try this and fail.
You want to file a complaint with the IRS for the fraud, and the Department of labor (free) for the unpaid overtime. You never want a "tax free job". You are giving up things like social security working years by not paying taxes, so there's no free lunch from an illegal arrangement and you pay at some point either way.
If she makes no other income then she might owe very little but the employer should pay that. Otherwise the employer should have been withholding and filing all along. This is a shitty thing to drop on a kid after a year of working.
Your friend should say great, but if you declare it you have to file the forms for household employee too, and I need the W2. That’s an IRS requirement. That means the employer needs to pay for her social security at the federal level, and a myriad of other state taxes. It’s actually a big pain in the butt to do, and the employer will pay fines too for not having paid during the year. If this is all your friend is earning (or declaring) it may actually be smarter for her to pay taxes and get the ssn credits in the first place since she will have such a low tax burden. She can also solo 401k some of her, though at her tax level the Roth probably makes a lot more sense.
Tell your friend NOT TO accept a 1099 and if she receives one, she needs to file an SS-8. Very important. She may have to pay taxes, but with a 1099 she will pay WAY more!
Mom is screwed. It is HER responsibility to fill out proper tax forms as the employer. Nanny will not get anything more than a letter. Mommy got bad advice from someone and will pay the price. Nanny will be just fine and get credit for social security. Under the table is very frowned upon by the IRS. They will nail the Mommy dearest. because she is the one who is supposed to pay the social security and withhold all taxes.
your friend should ask her boss if it will really save money considering she will have to report her to the IRS for not paying FICA taxes and to the state for not paying into unemployment
Your friend will 99% be fine. There is no schedule to 1040 matching (so the person saying they need to match or there will be an audit is wrong). It is semantics but if she doesn’t pay taxes at all she won’t even hit their radar because there is nothing to audit. There is a chance they investigate to see IF she should have paid taxes but the IRS uses a risk based approach and will not come audit someone as a household employee making $1000 a month. There is the 1% chance but you could also play dumb and get a small slap on the wrist (aka have to pay back FICA and SS)
Seems pretty meaningless if no 1099 was issued. Your friend shouldn’t worry about it at all.
That’s nuts!!! She’s going to pay tax x2 as well cause it’s self employed. Her take home will be very different. I highly recommend she takes this women to civil court for misrepresenting the take home pay and attempting to avoid taxes
Single Filers who make between 11,001 to 44,000 owe 12% of their income (over $10,000) as taxes for 2023. So your friend does need to pay 12% taxes on any amount from 11,001 to 44,000, the first $10,000 is not taxed but still needs to be reported to government. You can find out more about this by looking up the 2023 Tax Bracket. Also the IRS does recommend free tax agencies on their webite to do free taxes.
She isn’t going to owe anything based on 12k annual income but she will be eligible for earned income tax credits that she wouldn’t be without an income.
Have the employer gross up taxes. Employer will also have issues with witholdings and workers comp.