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Old 06-21-2011, 11:30 PM
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Join Date: Jun 2011
Location: Walton, NY
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Daycare

I hope I'm not misunderstanding posting guidelines, i.e. location, questions etc. My wife and I have hired a person to watch our children in our home. We have paid her X dollars so far this year. My wife has a FSA dependent care account that now has $2800 available. We are completely ignorant to our responsibilities as "employers" of our "domestic employee." From what I understand, we should be paying the appropriate taxes (medicare, Soc. Sec., Federal & State unemployment?) taxes for both employee and employer, meaning we are expected to pay this % on top of her X salary (it looks like this will come out to be about 15%). So imagine we have paid her $3000, we owe $450 in taxes (about). These taxes have nothing to do with the FSA account correct, i.e. the FSA being tax deferred doesn't mean we are exempt from domestic employee/employer taxes? In other words if we submit a receipt for the FSA $2800 reimbursement with her Soc. Sec. # (EIN) the govt (state and fed) will be looking for the taxes we owe right? What do i need to do now in order to make this all legal? I'll admit that I feel really stupid right about now to think that for some reason I would not have to pay the taxes because the FSA was "tax deferred." I'm sorry for my incompetence and I hope you could shed some light on the situation. Thanks taxguru! You're our only hope!



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Old 06-23-2011, 08:39 AM
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“From what I understand, we should be paying the appropriate taxes (medicare, Soc. Sec., Federal & State unemployment?) taxes for both employee and employer, meaning we are expected to pay this % on top of her X salary (it looks like this will come out to be about 15%).”--->Correct. As you can see, the Federal Insurance Contributions Act or (FICA) has the authority to collect payroll taxes for Social Security benefits. The FICA tax is the tool used for collecting funds for future Social Security benefits. It is actually 13.3% for 2011; as part of the deal Obama forged to extend unemployment benefits at the end of 2010, not only did tax rates stay the same across the board, but he also enacted what amounts to a substantial stimulus package by way of reducing the FICA rate by 2% to 4.2% for employees. In effect, this is a 2% bonus to all workers up to the cap of $106,800. So,the tax rate for income earned in calendar year 2011 is 13.3% (10.4% for Social Security and 2.9% for Medicare).

“So imagine we have paid her $3000, we owe $450 in taxes (about). These taxes have nothing to do with the FSA account correct, i.e. the FSA being tax deferred doesn't mean we are exempt from domestic employee/employer taxes?”---->Correct;the Dependent Care Flexible Spending Account offers tax savings on eligible dependent care expenses provided by qualified caregivers. The advantage of a pre-tax Dependent Care Flexible Spending Account is that you do not pay any federal, state, or social security (FICA) taxes on the money you contribute to it. Your contributions will automatically be deducted in equal installments from your paychecks before taxes are calculated.
In other words if we submit a receipt for the FSA $2800 reimbursement with her Soc. Sec. # (EIN) the govt (state and fed) will be looking for the taxes we owe right? What do i need to do now in order to make this all legal?”---->Correct; unless that babysitter is your parent, spouse, under-age-21 child or someone under age 18 whose principal occupation is not household employment (a student, for example), then you owe the tax as long as you pay the babysitter working in your home more than $1,700 in 2011( or in 2010). The nanny tax is actually shorthand for three federal employment taxes — Social Security and Medicare taxes ( I mean FICA tax) and the federal unemployment, or FUTA, tax. You will probably also owe state unemployment tax and perhaps state disability tax( in California) as well.
“ I'll admit that I feel really stupid right about now to think that for some reason I would not have to pay the taxes because the FSA was "tax deferred."---->Right. As said above.



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Old 06-23-2011, 09:53 AM
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Join Date: Jun 2011
Location: Walton, NY
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Thanks

Thanks WnHough. Do you know what my options are at this time since I have not been including the taxes in the domestic employees weekly checks?

I understand that something needs to be submitted quarterly (either employee or employer taxes)?

Can I still go back over the year and make these changes on employees W2 or is there some law that states if I haven't done it with a certain amount of time that....?

Does my employee have obligations as well or does it all fall on me as the employer?

I understand that I can pay my employee taxes (which I will do of course since I haven't been doing this appropriately).

Thanks again in advance.



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Old 06-23-2011, 11:32 AM
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“Do you know what my options are at this time since I have not been including the taxes in the domestic employees weekly checks? “--->Since you withheld no social security, or Medicare taxes from the nanny, EE’s wages, you can make it up from later pay to that employee. Basically as a household employer, you will be expected to do the following: file and pay payroll taxes,FICA Taxes, I mean, file and pay federal and state unemployment tax, file a Schedule H with your individual tax return and issue the form W-2 to the nanny and a W-3 to the Social Security Administration to report her income.
“I understand that something needs to be submitted quarterly (either employee or employer taxes)?”---> Since you employ a nanny and paid him/her a certain amount of money during the year, $1,700 as of 2010 and 2011, you must pay the household employee tax, also known as the "nanny tax." These taxes must be paid quarterly or you could face penalties come tax time. As long social security and Medicare taxes must be paid, you will need to file Form 1040, Schedule H onyour federal return. Generally speaking, based on the current IRS tax rules, Employers are required to use the quarterly forms, Form 941/ Form 940, for any wages paid to their employees; any tips that have been received by their employees; any amounts of Federal income tax has been withheld from an employees wages.
“Can I still go back over the year and make these changes on employees W2 or is there some law that states if I haven't done it with a certain amount of time that....?”---> As outlined in Section 6672 of the Internal Revenue Code, the responsible person, an ER, employer, is personally liable for a 100% payroll penalty for any failure pay withheld taxes from employees. In other words, you personally will owe the IRS all of that money. Even bankruptcy Won't Get Rid of Your Personal Liability for These Debts. So, the timeliness of FICA tax payments to the IRS is very important. The IRS penalizes late payers with significant penalties and interest. The regular income taxes and the portion of the FICA taxes that are withheld from employees' wages each pay period must be remitted to the IRS monthly (or semi-weekly in the case of an employer whose payroll taxes owed exceed $50,000 in the period), along with a Federal Tax Deposit Coupon (Form 8109-B). If the total tax due is less than $500, however, the business is allowed to make the payments quarterly.
“Does my employee have obligations as well or does it all fall on me as the employer?”---->It depends on the situation; as you said, the nanny is your EE as she gets W2 as an EE, NOT as an IC, so, you both owe half of this, 6.65 percent; technically, the employer, you owes 6.2% and 1.45% for Medicare and the EE ,the nanny, owes 4.2% and 1.45% for Medicare. If she is an IC that gets 1099MISC, then she is entirely responsible for her SE taxes,13.3% for 2011, her FICA taxes;I mean she needs to make her own quarterly estimated tax payments using form 1040-ES and sending a check with the payment stubs.
“I understand that I can pay my employee taxes (which I will do of course since I haven't been doing this appropriately).”----> If you employ someone who's subject to the "Nanny Tax" you aren't required to withhold federal income taxes. You have to withhold only if your nanny asks you to and you agree to withhold. (In that case, have the nanny, your EE, fill out a IRS Form W-4 and give it to you, so you can withhold the correct amount.) However, you may be required to withhold social security and Medicare tax (FICA). And you may also be required to pay (but not withhold) federal unemployment (FUTA) tax.
As said previously, the nanny tax comprises two federal taxes, FICA (Federal Insurance Contributions Act) and FUTA (Federal Unemployment Tax Act). FICA, which includes Social Security and Medicare tax, represents 13.3 percent of the wages you pay your nanny( both you and your EE owe half of FICA Taxes; however, you, not your EE, owe FUTA taxes). FUTA is due on the first $7,000 of the nanny's wages for the year — but only if you paid $1,000 or more in any calendar quarter for the current year or preceding year (2010 and 2009 respectively, if you are filling out your 2011 return). This tax is normally only 0.8 percent. However, if you fail to pay your state unemployment tax on time, the FUTA rate increases to 6.2 percent. I guess in general, states allow nanny taxes to be withheld. These taxes are for state unemployment and in some states workers compensation insurance. The percent and forms required differ from state and failure to withhold the appropriate taxes can result in hefty penalties. Check with your state tax center for more information about their requirements; you may visit DOR, dept of revenue, of your state.I guess you need to get some professional help from a tax practitioner nearest you in your local area.



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Old 06-23-2011, 11:53 AM
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Join Date: Jun 2011
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more

Once again, thanks.

I do have a couple of clarifying questions. I also will be in contact with tax professional as well.

1) "...issue the form W-2 to the nanny and a W-3 to the Social Security Administration to report her income."

-Do I issue all the W-2 forms that I did not issue previously (employee is paid weekly, so this would about 24 pay periods)?

2) "...Employers are required to use the quarterly forms, Form 941/ Form 940...The IRS penalizes late payers with significant penalties and interest"

-So I missed one of these due at the end of March I assume. Do you know the "significant penalities and interest"?

I think I'm getting this all figured out. Thank you very much for your quick response(s).



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Old 06-23-2011, 12:42 PM
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“1) "...issue the form W-2 to the nanny and a W-3 to the Social Security Administration to report her income."
“-Do I issue all the W-2 forms that I did not issue previously (employee is paid weekly, so this would about 24 pay periods)? “--->No; one W2 and one W3 per year: W2 is a US federal tax form issued by employers and stating how much an employee was paid in a year. W3 is a transmittal form which is sent to the Social Security Administration (SSA) showing total earnings, Social Security wages, Medicare wages and withholding for all employees for the previous year. You need to prepare six COPIES of Form W2 for each EE; you send copy A, along with W-3, to SSA before March 1, 2012. If applicable, you need to file Copy 1 with your state/local govt. agency. You also send Copies B( to EE for federal return), C to EE for his/her personal record and 2(to EE for state/local return) to each employee before Feb 1. You need to keep Copy D of W-2 Form.
“2) "...Employers are required to use the quarterly forms, Form 941/ Form 940...The IRS penalizes late payers with significant penalties and interest"--
“-So I missed one of these due at the end of March I assume. Do you know the "significant penalities and interest"?----> IRS business form 940 is used to report unemployment taxes called FUTA, for Federal Unemployment Tax Act as said previously. This tax is based on the initial $7000 that employers pay as wages to each of their employees. You must file a Form 940 ANNUALLY, NOT QUARTERLY.For example, assume that your accumulated tax liabilities for the 1st and 2nd quarter of 2011 were less than $500, then no PAYMENT was made for the first two quarters. However, if the accumulated liability at the end of the 3rd quarter exceeds the $500 limit, a payment needs to be made (as the accumulated tax liabilities exceed $500). The due date for filing Form 940 for 2011 is Jan 31 or February 1, 2012( I am NOT sure).
The IRS requires employers to file Form 941 on a quarterly basis( you need to file form941 normally on Apr 30, Not March 31. I mean by the last day of the month that follows the close of a calendar quarter). This form reports all wages paid and payroll taxes withheld. you must also pay any additional taxes required for the quarter when filing this form. If you file the form or send payments late, the IRS charges a penalty. Penalties can quickly add up if you are several months late or do not file this form at all. If you fail to file Form 941 by the filing deadline for that quarter,by the last of Apr of 2011 inyour case, then you will receive a 5 percent penalty on all tax owed during that quarter as of 2011. This penalty is cumulative; you receives an additional 5 percent penalty for each month you are late up to the maximum penalty of 25 percent a year.Also aslong as you don’t not pay required taxes when submitting Form 941, you receive a failure-to-pay penalty of 0.5 percent for each month the tax is late. If you makes payment arrangements with the IRS to pay off tax owed in monthly installments, this penalty is reduced to 0.25 percent per month. To qualify for the reduction, you must file Form 941 by the filing deadline. As with failure-to-file penalties, this penalty does not apply if the taxpayer receives an extension.
Please visit the IRS Website here; http://www.irs.gov/pub/irs-pdf/i941.pdf
http://www.irs.gov/pub/irs-pdf/i940.pdf



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