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Answers to the Most Frequently Asked Questions About Your Annual Payroll Tax Filings

HomeWork Solutions, Inc., December 2016

PLEASE NOTE: All Form 1040 and Schedule H line numbers refer to the forms for the tax year 2016 in this annual payroll tax filings FAQ.

How do I distribute the many copies of Form W-2?

Complete and Essential Payroll Clients: Your Employee W-2 forms are available for distribution in your eFiling Cabinet. Alternately, your employee may enroll for Employee Self Service at: http://www.homeworksolutions.com/hws-employee-self-service-portal/. Please either print and distribute or forward the employee the link to Employee Self Service no later than January 31.

Legacy NaniTax Service Clients: Employee copies must be distributed no later than January 31. These copies have been separated and inserted into mailing envelopes for your convenience. For individuals no longer in your employ, mail the W-2s no later than January 31 to their last known address.

We will electronically file or e-File your W2/W3 documents with the Social Security Administration no later than January 31. Changes after filing  will incur a $175 amendment fee.

Reminders

  • INCLUDE Schedule H  with YOUR Federal 1040.
  • DO take credit for 1040ES payments.
  • DO verify names and SSNs on W-3/W-2 forms.
  • If you use a paid preparer for your personal income taxes, DO provide them the Form 1040 Schedule H and the Year End Summary so they may make the proper entries on your annual income tax return.

Why are my FUTA taxes (Schedule H page 2) higher than estimated?

States are assessed FUTA Credit Reductions, meaning employers must pay FUTA tax surcharges, when Federal loans to the states to support unemployment benefits distribution have not been properly repaid. For 2016 this applies to California only

If you live in a Credit Reduction state you may be prohibited from e-filing your Federal return. The IRS e-filing systems may not support the necessary Credit Reduction Worksheet calculations on the Form 1040 Schedule H.

Why could the wages in Box 1 of Form W-2 be greater than those in Boxes 3 & 5?

Taxes paid by the employer on behalf of an employee (generally Social Security and Medicare) are included in the wage amounts in Box 1 but not in the amounts in Boxes 3 and 5. This typically occurs when an employer pays a net amount to the worker and agrees to pay the worker’s portion of Social Security and Medicare taxes.

Why could my quarterly state unemployment tax return show no tax due even though I paid wages?

Unemployment contributions are paid on a wage base determined by state legislature. If you paid your employee wages in excess of this base, those excess wages are exempt from tax. However, you must submit the tax returns, even if no tax is due.

How do Nanny Taxes impact my personal Federal Tax Return?

The wages paid and reconciliation of federal payroll taxes due are reported on Form 1040 Schedule H. You should attach Schedule H to your Form 1040 and enter the total of payroll taxes on Form 1040 Line 59a. If you made quarterly tax payments on Form 1040ES, enter the sum of those payments remitted before January 15, 2014 on Form 1040 Line 63.

HomeWork Solutions’ Premium Service Clients, we make your Form 1040ES payments electronically via the IRS EFTPS system. You or your authorized tax preparer are encouraged to verify actual payments made online with the IRS.

Why do I need a Schedule H?

Schedule H calculates federal employment taxes due for household workers and is filed with your personal income tax Form 1040. The amounts shown on Line 24 of Schedule H must be entered on Form 1040 Line 60a (2016 Form 1040).

Why are the Social Security and Medicare taxes shown on Form(s) W-2 less than the amounts shown on Schedule H?

Social Security and Medicare taxes remitted with Schedule H include the employee and employer components combined (15.3%). The Form W-2 reflects employee paid taxes only (7.65%) and does not include your employer contributions.

My employee is concerned because no income taxes were deducted last year. What should I do?

Advise your employee that he/she is responsible for paying any income taxes due on wages he/she received. You may withhold (deduct) income taxes going forward to avoid these year end surprises. If you write your own paychecks, our online tax calculator facilitates these calculations UNLESS you are in a nanny share.

I use TurboTax. Why did the amount of tax I owe go up when I entered my Schedule H information?

It is most likely that you forgot to take credit for the quarterly 1040ES payments you made throughout the year. The Schedule H adds tax due to your income tax return; the 1040ES payments credit tax paid to your return. Typically they will offset each other.

Complete and Essential Payroll Clients: Your Year End Summary has an itemization of the 1040ES payments that HWS made on your behalf. You can confirm these payments at EFTPS online at www.eftps.gov.

Legacy NaniTax Service Clients: You will find a list of the 1040ES vouchers we prepared for you on your Year End Summary. Verify that you actually made the payments!

Turbo Tax’s online interview asks you if you made Estimated Tax Payments – you need to answer YES and follow the online data entry prompts. If you already reached the Schedule H section of TurboTax, you missed it. Go back to your W-2 entry area and go through those questions again!

Unfortunately, our staff is unable to provide technical support for TurboTax or any other personal income tax software.

My nanny tried to e-File and couldn't. Why would that happen?

The IRS is instituting very strict controls on its e-File system to protect against fraud and abuse. Typical reasons we have found that a nanny has difficulty with e-File include:

  1. Your Employer Identification Number (EIN or FEIN) was issued  within the prior tax year. This is an anti-fraud measure .
  2. The nanny’s Social Security Number was issued within the last year and this is her first Federal Income Tax filing. Again, another anti-fraud measure.
  3. The nanny’s name was changed with the Social Security Administration within the last year due to marriage or divorce.

In all of the above cases, the nanny simply needs to file a paper return this year.

If the nanny’s name has changed and she HAS NOT recorded this with the Social Security Administration (SSA) she could experience difficulties when applying for a tax refund due to a “mismatch” between the name on the W-2 and tax return and the name in SSA records associated with that Social Security Number. The nanny generally will need to go to a local SSA office to get this straightened out.

My nanny has moved back to her home country. Does she still need to file and if so, how does she do that?

Generally, anyone who receives US-source income is required by law to file a US federal tax return. There are particular instances when this is not required and these can be found at the IRS website. Most states have filing requirements that mirror the Federal income tax system. Filing instructions for the Federal form 1040 or 1040NR should be consulted for specifics.

Are there any household employer tax breaks an employer can take advantage of?

There are two popular household employer tax breaks for families to make care more affordable. A family may use up to $6000 paid to a nanny or senior caregiver (qualified expenses) in any particular year. These tax breaks are not income-restricted. They do require, however, that both spouses must pass the “work-related expense test.” You (and your spouse if filing jointly) need to be employed or be a full-time student and the care must be for a qualified dependent. Additionally, the family must report and pay taxes on the nanny’s or caregiver’s wages to be eligible for either tax break. Consult your tax advisor for details.

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