Help me with Nanny Taxes
December 8, 2015 10:04 AM
My wife and I are hiring a part time nanny for about 20hrs/week, starting next month. I've begun looking into the tax situation, and its a bit of a nightmare. Please help!
I know can pay for a service like Care.com, GTM, or Nannychex, but these all cost between $700-$1000 per year in fees. However, according to this online calculator our total tax bill will only come to about $1500, so that seems like a ridiculous overhead that I'm not eager to pay.
However, managing the tax paperwork myself seems horribly complicated. There's a lot of info online, but its all rather piecemeal, and much of it it put out by companies trying to sell you their service. State-state differences further complicate things (We're in Massachusetts). As I understand it, I need to:
-File for an EIN
-File an I-9
-File a schedule H, possibly quarterly?
-File a W-2
-Pay both state and federal unemployment insurance
-Possible other Mass specific forms/fees?
Resources I've already found: I've tried to read through IRS form 926, but I confess my eyes glazed over a bit. This is a great detailed walkthrough of the process, but its specific to Washington state. I've also read these previous questions. I have already set up a dependent care FSA through work.
Those that have been through this process before, are there tools and resources that you found helpful? I would love at least a Massachusetts specific checklist/walkthrough that shows me everything I need to do. On the other hand, if you looked at all this and (understandably) went with a service, were they worth it and would you recommend them?
I know can pay for a service like Care.com, GTM, or Nannychex, but these all cost between $700-$1000 per year in fees. However, according to this online calculator our total tax bill will only come to about $1500, so that seems like a ridiculous overhead that I'm not eager to pay.
However, managing the tax paperwork myself seems horribly complicated. There's a lot of info online, but its all rather piecemeal, and much of it it put out by companies trying to sell you their service. State-state differences further complicate things (We're in Massachusetts). As I understand it, I need to:
-File for an EIN
-File an I-9
-File a schedule H, possibly quarterly?
-File a W-2
-Pay both state and federal unemployment insurance
-Possible other Mass specific forms/fees?
Resources I've already found: I've tried to read through IRS form 926, but I confess my eyes glazed over a bit. This is a great detailed walkthrough of the process, but its specific to Washington state. I've also read these previous questions. I have already set up a dependent care FSA through work.
Those that have been through this process before, are there tools and resources that you found helpful? I would love at least a Massachusetts specific checklist/walkthrough that shows me everything I need to do. On the other hand, if you looked at all this and (understandably) went with a service, were they worth it and would you recommend them?
Do you have an accountant who does your personal taxes? Mine does the nanny stuff for me for an additional $150 or so. It's totally worth it.
posted by BlahLaLa at 10:39 AM on December 8, 2015
posted by BlahLaLa at 10:39 AM on December 8, 2015
I confess my eyes glazed over a bit.
And this is why you need to pay someone whose eyes don't glaze over when they deal with payroll. Accountants spend a lot of time learning how to do this stuff. Software developers have spent a lot of time learning how to make good software to do it. These are valuable services, and that doesn't mean you shouldn't find the most inexpensive route, but please, don't do it yourself if you don't feel super confident that you know what you're doing. (And only then if you have reason to be!) Calling an electrician is expensive, but that's because they're providing a skilled service that will keep your house from burning down. The penalties for employers are much more harsh than the normal income tax penalties. I don't say this just to be scary, but people who self-prepare payroll screw up with about the same regularity you'd expect of people who try to rewire their own kitchens.
posted by Sequence at 10:56 AM on December 8, 2015
And this is why you need to pay someone whose eyes don't glaze over when they deal with payroll. Accountants spend a lot of time learning how to do this stuff. Software developers have spent a lot of time learning how to make good software to do it. These are valuable services, and that doesn't mean you shouldn't find the most inexpensive route, but please, don't do it yourself if you don't feel super confident that you know what you're doing. (And only then if you have reason to be!) Calling an electrician is expensive, but that's because they're providing a skilled service that will keep your house from burning down. The penalties for employers are much more harsh than the normal income tax penalties. I don't say this just to be scary, but people who self-prepare payroll screw up with about the same regularity you'd expect of people who try to rewire their own kitchens.
posted by Sequence at 10:56 AM on December 8, 2015
There are payroll accounting software packages that seem to do what you want. This is one. (I have no personal experience with this).
posted by H21 at 11:08 AM on December 8, 2015
posted by H21 at 11:08 AM on December 8, 2015
The question that would rack my brain is "Did I do this right?" What if you missed something you weren't aware of? You have no way of knowing, until somebody gets into trouble for doing something wrong.
We use care.com for our nanny share in MA (the families are two different employers, actually, each with their own EIN) for this very reason. We have been very happy with their level of service, although it is expensive, as you say.
Also, I'm not sure I see the logic in comparing the cost of accounting services to the total tax liability of your employee. Instead, compare the amount you pay for the service against the total cost of the nanny, I think that would give you a better measure of the overhead.
posted by grog at 11:51 AM on December 8, 2015
We use care.com for our nanny share in MA (the families are two different employers, actually, each with their own EIN) for this very reason. We have been very happy with their level of service, although it is expensive, as you say.
Also, I'm not sure I see the logic in comparing the cost of accounting services to the total tax liability of your employee. Instead, compare the amount you pay for the service against the total cost of the nanny, I think that would give you a better measure of the overhead.
posted by grog at 11:51 AM on December 8, 2015
We planned to do it ourselves...and then looked into it, and how complicated it is, along with the risk of messing up. It was a LOT easier to use care.com's service (Home Pay) - it's literally set it and forget it. It's not cheap but we were really happy with the time savings and how easy it was and I would definitely use it again. (We no longer have a nanny and are also in MA.)
I would actually figure out your hourly rate (like, what you earn at your job) and how much time it will take you to do your taxes, both quarterly and yearly, and compare that to the cost of a service. That's a more accurate picture of whether it is worth it to you, not what your total tax bill is.
posted by john_snow at 1:40 PM on December 8, 2015
I would actually figure out your hourly rate (like, what you earn at your job) and how much time it will take you to do your taxes, both quarterly and yearly, and compare that to the cost of a service. That's a more accurate picture of whether it is worth it to you, not what your total tax bill is.
posted by john_snow at 1:40 PM on December 8, 2015
Hire a professional. Mistakes will cost you, even if the actual 'doing taxes' part is more cost-effective to do yourself, it's worth it to know that you aren't going to be liable for fines. Tax codes also change yearly, so having someone whose job it is to keep on top of that is great for peace of mind.
posted by ananci at 3:15 PM on December 8, 2015
posted by ananci at 3:15 PM on December 8, 2015
Thanks all! I took your advice and hired a service. I was going to use GTM, but when I called them there were several hundred dollars of additional fees they don't make obvious on their page (e.g. the standard service files your quarterly taxes but if you want them to send you a year end Schedule H and any other forms that will cost you an extra $100). I signing up for PayPrep per snikerdoodle's recommendation.
I will try to update the thread with my impressions once we have started using it.
posted by jpdoane at 9:03 PM on December 24, 2015
I will try to update the thread with my impressions once we have started using it.
posted by jpdoane at 9:03 PM on December 24, 2015
This thread is closed to new comments.
Some other things to consider when you are plotting out the record keeping for taxes - are you all offering to contribute to nanny's healthcare? What about nanny's social security? What is your plan for vacation time/pay? And if you're doing this in a share, how are you going to calculate every family's contributions?
I can send you the nannyshare google spreadsheet that we used for this, but our share was pretty complicated (3 families, all close to fulltime but tracked by the minute, hosting family got a discount, etc.).
posted by k8t at 10:16 AM on December 8, 2015