As we discussed in Part 1 of this series, being paid legally and knowing the basics of the tax law, are an important part of being treated as a professional. In this section we are going to show you some real world examples of why being paid professionally pays off! Read more »
As a childcare professional, you have one of the most important and noble jobs in the world – to nurture, protect, educate, guide and inspire children. You should view yourself – and demand to be treated – as a professional. In part, this means making sure that your compensation is handled accurately, fairly and legally. Read more »
The nanny/household employee industry has been historically notorious for misclassifying their employees (i.e. paying them off the books). The IRS is giving families a chance to come clean and fix the problem by June 30, 2013. Experts estimate that the tax shortfall for families not reporting/paying is $3-$10 billion per YEAR! The IRS have been cracking down on the household employee industry in recent years, and many believe this is a warning that they will be targeting it even more.
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Since the basic difference between a Roth IRA and a Traditional IRA is being taxed on your income now (Roth IRA), or taxed in retirement (after age 59.5; Traditional IRA), one question you want to consider is the following: “Do you expect your tax bracket to be higher now, or in retirement?”
For most people just starting out in their careers and therefore making lower wages than they expect to in retirement (not always the case, since your income might go down as you may need less to live on in retirement), a Roth IRA often makes sense as the place to start investing.
There are other nice benefits of a Roth IRA, such as being able to pull contributions out at any time for any reason (“contributions” meaning any money you put in over the years, as opposed to “earnings,” which is any extra money that accumulates when your investments (hopefully) increase in value), and using up to $10,000 of earnings for a first-time home purchase.
THE FLEXIBLE SPENDING ACCOUNT WINDOW
A couple gave birth to a baby boy on July 3, 2011. In mid-July, they began searching for a nanny so the mom could go back to work after Labor Day. With about 2 weeks to spare, they found the perfect nanny.
When the mom went back to work, she learned that they had missed out on a major tax break. Read more »
Unreported Temporary Care: An Honest Mistake
With nanny taxes embarrassing politicians left and right these days, many American families want to know what they can do to avoid a similar fate. This edition of The Legal Review will discuss a common error made by families when hiring temporary care. Read more »
Employee or Independent Contractor?
As a nanny, you are always considered the employee of any family you work for (regardless of how many hours). The IRS allows families to employ nannies without putting them on payroll, if they pay the nanny less than $1,700 per calendar year. This law is primarily to allow families to have temporary nannies and not have to deal with payroll. As a nanny, you are required to claim all the wages you make throughout the year. It is a good idea if you do a lot of temporary work to keep a notebook and log all the families you work for, and how much you made. If this is your primary source of income, you will want to keep aside a portion of every dollar to pay for your tax portion in April. Read more »
We’ve recently been informed by our household tax specialists, Breedlove & Associates, that an existing tax law is now getting a lot more attention given our current economy and the increase in unemployment claims. If you are a nanny who does any on-call and/or temporary nanny work, you need to be aware of this law and the new attention it’s getting. If a family pays more than $1,000 per quarter in combined wages to all temporary household employees, they are obligated to contribute to the state and federal unemployment insurance funds. If a family choses to adhere to this law, it will flag each household employee to the IRS. While there is no tax-withholding obligation on the front end for the nanny, the IRS could use this information to check to see if these wages are being claimed on the nanny’s tax return. Therefore, it is always a good idea to track all your income throughout the year, even if it’s just temporary work.
For more information, feel free to contact Breedlove & Associates. They are willing to explain this law further and answer any questions you might have.