Have a Nanny? The “Nanny Tax” Could Land You in Serious Trouble


Did you hire a nanny or au pair in the last year? Did you set him or her up with the proper tax documents? The IRS will question: are you paying your household employees correctly?Since you did not hire a nanny to run a business, but rather a household, the immediate connection to the term “employee” may be lost. Many families believe that paying their nannies in cash with no tax forms filled out or having them file a 1099 Miscellaneous is sufficient in the eyes of the IRS. This is not the case.

If you did not have your nanny fill out the right tax form, this can turn into a costly mistake when it comes to your taxes. This type of misstep usually stems from a misunderstanding regarding employee classification. You may have proceeded in a way that you believe to be correct. Fortunately, the IRS has proposed a solution to achieve what they call “nanny tax amnesty” for people to reclassify their household employees and resolve these issues. Not taking advantage of this program can lead you to dealing with a debt crisis in the future so it’s best to take action as early as possible.

What Is Tax Amnesty?

The solution provided by the IRS is called the Voluntary Classification Settlement Program (VCSP). This program allows families who have previously filed their nannies as independent contractors to reclassify them as employees. This is important because correcting tax forms under this program will allow families to avoid interest and penalty fees as well as an employment tax audit.

As with any proposed solution, there are qualifications a person must meet before proceeding. A tax amnesty service can help you understand the full language of what’s involved in the VCSP and how it benefits you to partake in it. Choosing not to file your employment tax correctly can result in an audit and back taxes owed to the IRS, two things you want to avoid whenever possible.

Seek Out Solutions

Whenever you hire someone to work for you – whether it’s for your home or for a business – you must know how to properly file taxes for both you and for them. If you have questions or are unsure what the best option is, speak to a professional financial advisor to ensure you are abiding by the requirements set forth by the government. This will help avoid hassles and headaches later on down the road.

There are tax debt relief specialists available who are skilled in negotiating payment arrangements with the IRS and setting up payment plans for individuals who may be facing a financial hardship due to taxes owed. Just know that whatever your situation – you have options.

Make life easier for both your family and your nanny by getting the assistance you need and signing up for the programs available. Ignoring the “nanny tax” can lead to unwelcomed actions by the IRS that may not be stopped. Take control of the situation to make things right for the financial benefit of your family and to ensure a better peace of mind for yourself.

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