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.

How to Use Your Childcare Tax Credit

 

 

April 15th is almost here and many of you are working on filing your taxes.  Over the last few weeks TLC for Kids has received calls and emails about how to handle nanny taxes.  We are not tax experts at TLC for Kids, so we recommend using Homepay for all your household employment needs.   Here is some information on nanny taxes that you may find helpful.

Paying taxes tends to invoke negative feelings for most people. Fortunately for household employers, there’s a silver lining– tax breaks. As long as you and your spouse are working or are a full-time student and have at least one child under 13, you’re in a great position to make back most, if not all, of your nanny taxes. Here are two ways you can save:

 

1) Dependent Care Flexible Spending Account. Many companies offer their employees the option to set aside up to $5,000 of their pre-tax earnings into a Dependent Care Account to pay for childcare expenses. This means there is no federal or state income tax, Social Security tax or Medicare tax on $5,000 of either you or your spouse’s income. Depending on your state and your tax bracket, this deduction will save you anywhere from $2,000 to $2,300 per year.

2) Child Care Tax Credit. If you don’t have access to a Dependent Care Account, you can claim the Tax Credit for Child or Dependent Care (IRS Form 2441) on your federal income tax return at year end. If you have one child, you can save up to $600 per year (20% on up to $3,000 in childcare expenses). If you have two or more children, your savings will be up to $1,200 per year (20% on up to $6,000 in childcare expenses).

Great News! If you have two or more children under the age of 13, you can use a combination of these two tax breaks in order to achieve a maximum of $2,500 in tax savings.

For many families, the tax breaks will offset a large portion of the employer tax costs. This is especially true for those employing someone on a part-time, seasonal or NannyShare basis.

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.