I have not been paying my nanny tax. What must I do now? Any way to avoid the charge/penalty?

Question

I classified my nanny as an independent contractor, which in fact she is not.

Answer 1

then you should be taking taxes out of her pay but if this is the case then you would have to be willing to file your taxes as a business....you truly are paying her correctly...she should be paying estimated taxes quarterly on the money she earns from you....you could pay the tax for her on her return or you could just not claim the expense...i assume that you have children that you would want to claim daycare expenses on....in this case you would treat your nanny as any other daycare establishment

Answer 2

What you do now is fill out a ton of paperwork and pay the taxes on her income. You probably have to do paperwork for the IRS and also for the state, depending on where you live. I'd call both the IRS and your state to see what has to be done, rather than relying on answers here on Yahoo.

You'll not only have to pay your half of the social security, but will be required to withhold other taxes also from her paycheck and submit them to the IRS (and the state if applicable) in a timely manner.

The other option, not strictly legal but probably would work out, is to pay her extra for the additional taxes she'd have to pay, and have her claim the income for 2006 as independent contractor. You'd still be vulnerable for her to come back on you later for employee status and you'd have to pay again for the taxes. The IRS probably wouldn't care much though.

Good luck. This is a tough area, with many people just working "under the table", or as independent contractors even though you're right, if they're working in your home, they almost certainly are NOT. Note that I'm definitely not suggesting having her work under the table even though it's often done - NOT a good idea to evade the taxes.

Good luck.

Answer 3

Owch. The proper thing to do is to pay the IRS for both the withholdable portion and the employer's portion of the taxes you will also owe the state for unemployment and maybe workers comp. You are entitled to withhold 7.65% of the nanny's pay for social security and medicare. Ask the nanny if s/he would allow that. If not, you can either forget it or sue her for the taxes and garnish her wages.

Answer 4

i know that in the state of ohio last year, they offered a tax amnesty to anyone in this kind of situation, but i'm not sure if the government does something like this

Answer 5

if it was an honest mistake, call the irs and explain it to them.
I madea silly blunder and told them and they cahrged me the right rate with no penalty, late fee or interest.
Honesty...it is the best policy.

Answer 6

Pay up! There's no way around it.