Covid Home School Assistant/Childcare: Taxes edition
August 7, 2020 5:28 PM Subscribe
So we are taking the plunge and going remote learning for both kiddos this school term. We are hiring a Teaching Assistant to help them both (K and 3rd grade) with school work during the day, and then effectively being childcare from "school" end till Mrs Inflatablekiwi and I finish work. Trying to figure out the best approach on handling employment and taxes etc. More info and questions inside....
Our Teaching Assistant will be effectively helping our kids while their school is dedicating a remote teacher to be full time online teaching a "class" of remote learners. We plan to broadly follow school hours (approx 32 hours a week), and then the Teaching Assistant will then become childcare until 5pm or so (about 8 hours a week).
I'm trying to set this up correctly in terms of taxes etc as I work for a company where I have to disclose *any* personal tax issues or audits for compliance reasons - and a tax issue could be extremely career limiting - so definitely not doing cash under the table or anything. If needed I'm going to "gross-up" hourly salary to effectively pay taxes for the individual and achieve the wage per hour they need - super paranoid about taxes not being paid...and a lot of people we've interviewed have been looking for cash under the table....
We are planning on using a reputable service (Care.com, NannyChex etc) to handle the actual payroll, tax fillings, W-2 generation etc. This will all be in Utah.
1. Does anyone have a recent recommendation on a decent payroll service for home assistance that they have used without too much hassle? Seems like there are many options (although some of them don't support Utah - I can figure that out if people have good recommendations). I wasn't sure if there was one more tailored to home educators (guessing not - couldn't see one) - but if there was that would be good to know!
2. We plan to essentially line item 32 hours a week for teaching assistance and then 8 hours a week for childcare - so we can claim the 8 hours per week on our flexible spending account to use up a sizable balance we have remaining on it. Has any one had issues using a Flex Spending Account, with a W-2 home employee who provides both a FSA qualifying and a non-FSA qualifying service? (if that makes sense - holy cow this is complicated)
3. Any other things we should considerr, or candidly anyway to make this more attractive and beneficial for the person we hire tax wise?
First time I've done this so coming in cold on background on how this all works.....
Our Teaching Assistant will be effectively helping our kids while their school is dedicating a remote teacher to be full time online teaching a "class" of remote learners. We plan to broadly follow school hours (approx 32 hours a week), and then the Teaching Assistant will then become childcare until 5pm or so (about 8 hours a week).
I'm trying to set this up correctly in terms of taxes etc as I work for a company where I have to disclose *any* personal tax issues or audits for compliance reasons - and a tax issue could be extremely career limiting - so definitely not doing cash under the table or anything. If needed I'm going to "gross-up" hourly salary to effectively pay taxes for the individual and achieve the wage per hour they need - super paranoid about taxes not being paid...and a lot of people we've interviewed have been looking for cash under the table....
We are planning on using a reputable service (Care.com, NannyChex etc) to handle the actual payroll, tax fillings, W-2 generation etc. This will all be in Utah.
1. Does anyone have a recent recommendation on a decent payroll service for home assistance that they have used without too much hassle? Seems like there are many options (although some of them don't support Utah - I can figure that out if people have good recommendations). I wasn't sure if there was one more tailored to home educators (guessing not - couldn't see one) - but if there was that would be good to know!
2. We plan to essentially line item 32 hours a week for teaching assistance and then 8 hours a week for childcare - so we can claim the 8 hours per week on our flexible spending account to use up a sizable balance we have remaining on it. Has any one had issues using a Flex Spending Account, with a W-2 home employee who provides both a FSA qualifying and a non-FSA qualifying service? (if that makes sense - holy cow this is complicated)
3. Any other things we should considerr, or candidly anyway to make this more attractive and beneficial for the person we hire tax wise?
First time I've done this so coming in cold on background on how this all works.....
Yeah, I think there's a very strong argument to be made that this person is a nanny who happens to be helping your kids through their schoolwork, rather than a private tutor. I mean, when you have an afterschool program or caregiver who provides afterschool care including homework help, you don't have to call out those hours as tutoring. They are childcare. In-home care for a child of school age typically includes making sure they do some schoolwork.
I've had the same question TBH as regards using my FSA, but since one of the kids being cared for is a baby and one of them is a four-year-old who will be doing nine hours of preschool online max per week, it's quite clear in my case that the employee is primarily a nanny who just also supervises a second-grader's online school. But I think that unless someone at the IRS has it in for you personally (my condolences if this is the case! Sounds awful) the probability that you'll be audited for this is very low - what they don't want is you using the FSA to pay for your high schooler's SAT cram school. I'd run it by a tax attorney to be sure if you're really worried though. But this may not be that spelled out in the rules because literally never in history have parents en masse had to hire people to supervise their kids doing school on the computer, so there's no chance this case is written into the law.
You can use a nanny paycheck calculator to get a sense of where you have to aim the pay rate to get the actual take-home pay your nanny wants. One thing that kind of surprised me when I was digging into all this was that it isn't required for household employees to have their income taxes withheld, just their Medicare and SS taxes. Theoretically they're supposed to pay quarterly estimated taxes (I assume many don't) but you aren't responsible as their employer for making sure those are paid. So when people say they want a certain take-home from their childcare job, you need to be super clear what they mean - do they mean under the table, ideally cash payment, flying below the radar of all state and federal authorities style tax avoidance? Do they mean they want to take that much home after Medicare, SS, and any required local taxes, and they'll deal with income tax when that becomes salient next April? Or do they mean they want to take that home after Medicare, SS, any required local taxes, and state and federal income taxes? Your expected payments will vary a lot depending on the answer to this question because income taxes are by far the highest tax most nannies are going to be on the hook to pay.
posted by potrzebie at 10:07 PM on August 7, 2020
I've had the same question TBH as regards using my FSA, but since one of the kids being cared for is a baby and one of them is a four-year-old who will be doing nine hours of preschool online max per week, it's quite clear in my case that the employee is primarily a nanny who just also supervises a second-grader's online school. But I think that unless someone at the IRS has it in for you personally (my condolences if this is the case! Sounds awful) the probability that you'll be audited for this is very low - what they don't want is you using the FSA to pay for your high schooler's SAT cram school. I'd run it by a tax attorney to be sure if you're really worried though. But this may not be that spelled out in the rules because literally never in history have parents en masse had to hire people to supervise their kids doing school on the computer, so there's no chance this case is written into the law.
You can use a nanny paycheck calculator to get a sense of where you have to aim the pay rate to get the actual take-home pay your nanny wants. One thing that kind of surprised me when I was digging into all this was that it isn't required for household employees to have their income taxes withheld, just their Medicare and SS taxes. Theoretically they're supposed to pay quarterly estimated taxes (I assume many don't) but you aren't responsible as their employer for making sure those are paid. So when people say they want a certain take-home from their childcare job, you need to be super clear what they mean - do they mean under the table, ideally cash payment, flying below the radar of all state and federal authorities style tax avoidance? Do they mean they want to take that much home after Medicare, SS, and any required local taxes, and they'll deal with income tax when that becomes salient next April? Or do they mean they want to take that home after Medicare, SS, any required local taxes, and state and federal income taxes? Your expected payments will vary a lot depending on the answer to this question because income taxes are by far the highest tax most nannies are going to be on the hook to pay.
posted by potrzebie at 10:07 PM on August 7, 2020
(BTW interestingly I'm actually not sure if my kid's online preschool tuition is more or less dodgy from an FSA perspective. On the one hand, they're the people I'd usually be paying to take care of this kid all day! But on the other hand, what they are providing this fall is emphatically not childcare. He'll require more attention from an adult to be prodded into paying attention to video school than he would just left to his own devices to rattle around the house. Weird times!)
posted by potrzebie at 10:09 PM on August 7, 2020
posted by potrzebie at 10:09 PM on August 7, 2020
I work for a company where I have to disclose *any* personal tax issues or audits for compliance reasons - and a tax issue could be extremely career limiting
For this situation, I would absolutely hire an accountant. You want to be able to truthfully say you are confident you have no tax issues because you have hired a professional to make sure that's taken care of.
I have bad news for you on getting audited though -- the IRS selects people randomly for audits -- well also nonrandomly as well but you get the idea:
Random selection and computer screening - sometimes returns are selected based solely on a statistical formula. We compare your tax return against “norms” for similar returns. We develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information.
So if merely getting audited would cause issues for your career, you might just randomly have your career end through no fault of your own. I don't know if there are some accountants that might have statistical techniques to help you avoid being one of these random audit cases? You would want to make sure that's not illegal in itself, manipulating the system to avoid a random audit. (which might also be career ending)
If there are accountants near you that specialize in helping people in your sort of employment situation, I'd talk with them first. Maybe ask others at your job who they use, unless asking about accountants is seen as a red flag??? I've never heard of a job where merely getting randomly audited could end your career but I guess for some things it would look very bad.
posted by yohko at 10:59 PM on August 7, 2020 [1 favorite]
For this situation, I would absolutely hire an accountant. You want to be able to truthfully say you are confident you have no tax issues because you have hired a professional to make sure that's taken care of.
I have bad news for you on getting audited though -- the IRS selects people randomly for audits -- well also nonrandomly as well but you get the idea:
Random selection and computer screening - sometimes returns are selected based solely on a statistical formula. We compare your tax return against “norms” for similar returns. We develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information.
So if merely getting audited would cause issues for your career, you might just randomly have your career end through no fault of your own. I don't know if there are some accountants that might have statistical techniques to help you avoid being one of these random audit cases? You would want to make sure that's not illegal in itself, manipulating the system to avoid a random audit. (which might also be career ending)
If there are accountants near you that specialize in helping people in your sort of employment situation, I'd talk with them first. Maybe ask others at your job who they use, unless asking about accountants is seen as a red flag??? I've never heard of a job where merely getting randomly audited could end your career but I guess for some things it would look very bad.
posted by yohko at 10:59 PM on August 7, 2020 [1 favorite]
"you aren't responsible as their employer for making sure those are paid"
You are responsible as the employer for filing a W-2, so if the taxes don't get paid it's going to be a real short ride.
posted by away for regrooving at 1:25 AM on August 8, 2020
You are responsible as the employer for filing a W-2, so if the taxes don't get paid it's going to be a real short ride.
posted by away for regrooving at 1:25 AM on August 8, 2020
I work in the payroll/benefits industry, and Care.com's HomePay is frequently recommended for paying nannies (I can't recommend my comany, unfortunately, we're not a good fit for this type of thing). They offer a free consultation--which, yes, is probably their sales team, but by all accounts they'll be a very informed sales team.
They'll most likely direct you to your accountant or FSA administrator with the FSA questions, though--and that's my advice, as well. You may want to seriously consider whether you're truly hiring this person for two discrete jobs, or if you're hiring them as a childcare provider with one of their many duties being making sure the kids get their schoolwork done and providing tutoring if necessary. For me personally, I think the deciding factor would be whether or not you're specifically aiming to hire someone with current teaching credentials--harder to call them (and pay them as) a nanny, then.
Also, in case you don't know and you don't end up being able to use as much of your FSA as you'd like, you can reduce or end your contributions toward it. That doesn't help with your current balance--you can't get rid of that--but that is expressly allowed now, as part of the CARES Act.
posted by rhiannonstone at 3:18 PM on August 8, 2020
They'll most likely direct you to your accountant or FSA administrator with the FSA questions, though--and that's my advice, as well. You may want to seriously consider whether you're truly hiring this person for two discrete jobs, or if you're hiring them as a childcare provider with one of their many duties being making sure the kids get their schoolwork done and providing tutoring if necessary. For me personally, I think the deciding factor would be whether or not you're specifically aiming to hire someone with current teaching credentials--harder to call them (and pay them as) a nanny, then.
Also, in case you don't know and you don't end up being able to use as much of your FSA as you'd like, you can reduce or end your contributions toward it. That doesn't help with your current balance--you can't get rid of that--but that is expressly allowed now, as part of the CARES Act.
posted by rhiannonstone at 3:18 PM on August 8, 2020
I should add: I assume you have a Dependent Care FSA, not a Health FSA (more commonly just referred to as an FSA), since you're talking about using it for dependent care expenses. If not, you may not be able to use your FSA funds for any portion of this.
posted by rhiannonstone at 3:24 PM on August 8, 2020
posted by rhiannonstone at 3:24 PM on August 8, 2020
I'm unclear if you were also asking how to make the job more attractive to candidates, but in my experience offering health insurance would make a big difference.
posted by postel's law at 9:43 PM on August 8, 2020
posted by postel's law at 9:43 PM on August 8, 2020
Call a temp or employment agency, ask if they handle payroll taxes and paperwork, or can recommend an agency that does.
posted by theora55 at 10:06 AM on August 9, 2020
posted by theora55 at 10:06 AM on August 9, 2020
This thread is closed to new comments.
posted by AugustWest at 6:15 PM on August 7, 2020 [1 favorite]