Federal Reporting Thresholds for Household Employers

Tax information for employers and nannies is being updated for the new year. Thanks to our friends at HomePay for this valuable information all nannies and employers should know.  photo of tax papers and calculator

The earnings threshold that triggers the requirement to remit FICA taxes on a household employee’s wages will increase from $2,400 in 2022 to $2,600 in 2023. If the annual FICA wage threshold is reached, the employer becomes responsible for remitting both the employee and employer portions of FICA on all the wages they paid to the employee during the tax year. When wages paid to a household employee do not reach the annual FICA threshold, the employer is not required to issue a W-2. 

A new line has been added to form 1040 (federal personal income tax return) for reporting income earned as a household employee that was not reported on form W-2 because the wages stayed below the FICA threshold. It is no coincidence that the IRS added this new line alongside the change to the threshold triggering the requirement for TPSOs like Venmo and PayPal to file and issue a 1099-K.* 

*Previously, the 1099-K threshold had been $20,000 and 200+ transactions received. Effective 1/1/23, the threshold will be $600 in payments received. 

1099-K Threshold Changes Postponed

This past Friday, December 23rd, the IRS announced that the effective date of the new 1099-K threshold will be pushed back a year. So, rather than impacting payments made after 1/1/22, the change will impact payments made after 1/1/23. Per the IRS announcement, the delay is intended to provide more time for taxpayers to prepare and understand the new reporting requirements. 

While changes to the 1099-K requirements do not impact payments made through a payroll service, we know that TPSOs like Venmo, PayPal and Stripe are frequently used by families to pay date night sitters and other more temporary/adhoc providers. Earlier this year, we shared answers to FAQs we received when the change was first announced. As of now, the answers are still accurate – minus the effective date of the change. We will continue to compile resources to help families and domestic workers ensure that they have their ducks in a row for the 2023 tax filing season.

Should you have any questions, give us a call or reach out to HomePay for all your nanny tax and payroll needs.

The professionals at TLC Family Care personally assist nannies, babysitters and families in St. Louis, Atlanta, Chicago, Nashville, Memphis, Charlotte, Miami and Orlando to find the right childcare arrangement. Our mission is to provide a safe and personalized  approach for families and caregivers to connect with each other that is not an internet search. TLC has worked with families, nannies, sitters, newborn care providers, and tutors for over 35 years and looks forward to working with you! To find great nanny and babysitting jobs visit us at tlc@tlcforkids.com or Call 314-725-5660.

Understanding Nanny Taxes

Do you have a summer nanny working for you this season or an after-school nanny starting in the fall? Many of TLC’s clients hire a TLC caregiver to be their full-time nanny during the summer or a part-time, after-school nanny to help out during the school year. Having a nanny makes life a lot easier, but we often get phone calls asking questions about paying your nanny taxes.

Talking about taxes can often seem overwhelming. Luckily, TLC can refer you to professionals that can help. We recommend using Breedlove and Associates for all your household employment needs.

By definition, a nanny working in the home of a family is an employee of the family (even if the job is temporary, permanent, part-time, or full-time). The nanny is NOT an independent contractor. The ‘employee’ classification is determined by the nature of the work performed—not by how much the nanny is paid or the amount of time she is with the family. The IRS has ruled definitively that caregivers are employees of the families for whom they work.

If you are only employing a nanny for a few months in the summer or for very part-time hours during the school year, you may not think you need to withhold taxes from your nanny’s wages, but you are most, likely mistaken.

If you pay your nanny more than $1,900 (2014) in a calendar year, you, as an employer, must meet the household employment tax withholding and reporting obligations. You are required to withhold payroll taxes from your nanny’s wages and then report and pay those taxes to the tax agencies quarterly. Before your nanny starts, have her fill out a w-4. This form helps determines how much will be withheld from your nanny’s paycheck. At the end of the year, your nanny should be sent a Form W-2 detailing her wages, as well as the taxes that she has pre-paid throughout the year.

Filing the necessary papers and to pay your nanny legally may seem like a hassle, but it is illegal for you—the employer—to fail to withhold taxes and file employment tax returns. Our friends at Breedlove and Associates, will take the stress out of paying your nanny legally and will educate you and help you take advantage of the tax breaks you may enjoy by doing so. Visit their website to learn how.

We hope you find this helpful. Please call TLC for Kids St. Louis 314-725-5660 or TLC for Kids Miami 305-256-5905 for your child care needs.