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Congress simplified the “nanny taxes.” What does that mean to me?

Congress legislated significant revisions to the “Nanny Tax” in October 1994. The remittance of the FEDERAL nanny payroll taxes was incorporated in the employing families’ annual Form 1040 filings. Most payments to household workers under 18 years of age are now exempted. The wage payment that triggers an obligation to make “Nanny Tax” filings was increased and indexed for inflation, the first such change since the 1950’s.

A Trojan Horse: The most important change requires household employers to disclose the wages paid to household staff on the employer’s personal income tax return. Failure to disclose this information will compromise the integrity of the personal tax return, which is signed and submitted under penalties of perjury. This dramatically raised the risks to the employing families for non-compliance with the nanny taxes. The IRS has no statue of limitations when auditing and collecting taxes if you file false/fraudulent returns. There is no statue of limitations on the nanny payroll tax obligation – a back tax claim can come many, many years after the liability was incurred. Sadly, families who employed long term staff, paying them cash, have found themselves in very uncomfortable circumstances when the domestic files for Social Security Benefits.

Most important, this ‘simplification’ only affects your FEDERAL employment tax obligations. Most state reporting requirements remain on a quarterly schedule.

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