It’s amazing how much of an idiot I felt like when we hired a babysitter for two days a week for about a year and then it came time to do things properly regarding taxes and her wages.
I understand why it’s important to do it properly (for the employee’s benefit) but when I tried to look into what we had to do, as technically her employer, and it was nearly impossible for me to figure out what we had to do and then how to even do it (federal and state). I understand why many people just want to pay cash under the table. It really made me feel like a complete moron.
If we ever do it again we’ll have to just hire a payroll service and factor that cost into what wages we can offer, or structure it so that total payments remain under the threshold required for filing.
Highly recommend a payroll service for this, like Poppins. It costs like $50/mo for a single employee, which is rounding error on nanny wages, and they do all the withholding and state tax filing for you. Then give you instructions on how to fill out federal tax Schedule H on your personal taxes (1040).
I did it manually the first time around and it was a pain in the ass.
Yes, I wish I had known about this before. In our case we weren’t hiring a full-time nanny, but a regular part-time babysitter (16 hrs/week) just often enough that we met the criteria for needing to file and all that, so payroll services would be a more significant part of the total we ended up paying for wages.
No. I said “more significant”, relative to full time employment. It would have been around 5% extra per month, so it’s not nothing.
With the hindsight I have now it would have been much cheaper for us than it turned out to be, but that’s still extra money I’m paying simply because complying with the law is as complex as it is, and I’m not running a business, just hiring a part-time caretaker.
Non-US citizen here: you have to declare what you paid the nanny to the IRS? Where I'm from, only the receiving end of the money needs to declare how much they earned. The only reason we file expenses is for tax deductions. The US tax system has always seemed so hostilely complex to me.
It’s worse than that. For example we were also supposed to withhold 50% of the social security tax that the employee is responsible for, or if we pay the full amount for them (which we did because we didn’t know we were supposed to withold that), then we have to declare that as additional income for the employee, and more I’m sure I’m forgetting because I started to lose it at that point.
You don't have to do any of that. Its their job to report income and pay taxes. Withholdings are a "convenience" not a requirement. Furthermore you weren't their employer, they provided a service to you.
The IRS seems to think a babysitter is a household employee [1], which makes mkrisc a household employer and subject to various requirements. Withholding for federal income tax is voluntary, but employment tax isn't assuming the total pay is over the thresholds.
Not knowing what was required for sure? Figuring out how to fill out the 1099-MISC? Knowing how to file it with the IRS/state?
I remember it being a bit tricky at first but once I knew the right form it only took a few minutes. The hard part for me is keeping track of rule changes.
If they’re trying to follow the rules, then they can’t just fill out a 1099-MISC.
A babysitter one of the examples specifically called out as a household employee in the IRS guidance[1], so if you’re doing it right you should be running payroll. That’s pretty tricky to DIY properly.
I can see doing this for a nanny, but surely no one is jumping through all these hoops for ad-hoc, hourly babysitting? Any of the random highschoolers or college kids I've used would look at me like I was crazy if I tried to set them up on payroll lol.
It depends on if your yearly payments to them exceed some threshold. There may be more to it than that, of course. Don’t listen to me, I’m the idiot who couldn’t figure it out.
For all intents and purposes, a babysitter is looked at just like a nanny in that if they must adhere to the schedule you set and come to your home to take care of your kids based on the rules you set, the IRS will most likely view this as an employment relationship. And taxes can sneak up on you quickly. If the babysitter earns just $15 per hour and works even 10 hours per week, you’ll cross the $2,700 tax withholding threshold in a little over four months.
I have a housekeeper who only comes in once a month and (I learn) is fairly inexpensive though it doesn’t seem that way. Weekly it would be way over the threshold. I assume
my lawn guy whose basic work is under that threshold —and has a business—doesn’t count either although he does other jobs as well for me and others. But that’s true of contractors generally. So I assume one just does what most people do in common situations.
What made it difficult was: finding out we needed to do anything at all, finding out what that “anything” even was, finding instructions for doing it, parsing the instructions and figuring out if we were reading the correct instructions, figuring out if the various exceptions and other special clauses applied, researching those, then figuring out how to actually do any of this, and so on, and then again a second time for state taxes.
Nevermind going down the rabbit whole of trying to figure out if we need an EIN and then repeating the same discovery and learning process for just that small part of the whole entire thing.
Honestly it would have been a full time job for me to successfully navigate it all. I don’t see how it’s possible to do without already being a CPA or accountant of some sort. It’s an entire domain of knowledge and I had almost none of that knowledge. There’s too much else going on in my life to begin to delve into all that.
> “all this for…” — you’re employing someone for 40% a full time duration. of course you need to do the right thing, ensure they get the right wage, if you need to pay benefis, etc.
this is such a privileged position and you think you should’ve just been able to pay cash and potentially screw someone over?
I went through all the trouble because I thought it was the right thing to do and I wanted to do right by the babysitter. It’s why I ended up paying an accountant a larger lump of money than I would have liked to in order to get it all sorted out.
Im complaining how difficult it is to do the right thing.
Sorry about that other poster, I appreciate your answer to my question. Thinking it's a lot for an individual household to have to identify and do this much paperwork for childcare is an entirely reasonable response. As is doing taxes in the US in general... it can be both obnoxiously overboard and also be well intended.
I did not read anything in your post that suggested you resented the babysitter or having to pay money to do it properly.
I read the exact opposite, that more people would if the process were not so burdensom of people who obviously have a child and so presumably not a ton of time for paperwork.
After all, you did it properly... what's to get angry about other than the topic of the original article, that tax paperwork is overboard?
> you think you should’ve just been able to pay cash and potentially screw someone over
You're only benefitting the babysitter by paying them cash, big win for them. And benefitting yourself to avoid all that payroll hassle that nobody understands. Win-win.
The complexity will vary by state. But basically you have to create a small business with a unique tax id, then pay into your employee's social security benefits.
Yep, there's a thriving industry around nanny payroll services, if you don't want to become an accountant. Wish the common use-cases were streamlined for DIYers.
I understand why it’s important to do it properly (for the employee’s benefit) but when I tried to look into what we had to do, as technically her employer, and it was nearly impossible for me to figure out what we had to do and then how to even do it (federal and state). I understand why many people just want to pay cash under the table. It really made me feel like a complete moron.
If we ever do it again we’ll have to just hire a payroll service and factor that cost into what wages we can offer, or structure it so that total payments remain under the threshold required for filing.