Q: We are going to hire a nanny to help care for our two small children. We have heard different opinions about whether we will have to deduct Social Security taxes from the wages we will be paying this person. Can you please clarify this?
A: I’m a retired Social Security guy. We know all about the output side of the program (Social Security benefits), but not much about input side of the ledger (Social Security taxes). This is actually a question for the Internal Revenue Service. IRS is responsible for all tax matters, including the payment of Social Security taxes. But I know enough about the issue to get you thinking in the right direction.
Whether or not you have to deduct Social Security taxes from your nanny’s pay depends on several circumstances. Some nannies are self-employed. In other words, they run a business that supplies nanny services. If that is your case, then it is probably the nanny’s responsibility to pay self-employment Social Security taxes out of the money you give her.
But if you have simply hired a woman to serve as your nanny, then you may have some tax obligations. If you will pay her at least $1,900 in 2014, then you must deduct Social Security AND Medicare taxes from her pay. And you must report those tax payments to the federal government. To learn how to do that, you should read an IRS publication called “Household Employers Tax Guide.” You can find it at their website. Here is a link: www.irs.gov/publications/p926/index.html.
Q: We have hired a nanny and I know we are supposed to deduct taxes from her paycheck. But she has pleaded with us not to do that. She said she would prefer having us just give her that money rather than send it to the government. So far, we’ve abided by her wishes. But I’m wondering if we could get in trouble for this?
A: If you were asking this question of someone at IRS, I’m sure they would tell you: “Yes, you are breaking the law!” But since you asked me, a retired old goat who happens to write a column about Social Security issues, I’d say: “Welcome to the club!”
My wife and I have never hired any household help of any kind, so I have no direct experience in these matters. But we lived for many years in an exclusive suburb of San Diego. (We were the poorest people in a neighborhood of fat cats and yuppies — think “The Beverly Hillbillies!”)
Anyway, we were surrounded by folks who hired nannies, maids, yard workers and other people to do for them what my wife and I have always done for ourselves. And I know from talking to my neighbors and others in the community that almost none of them paid Social Security or other taxes for their hired help. And I never saw any of those folks hauled off to jail.
Now if you were planning to run for political office someday, then I’d suggest you immediately get that IRS pamphlet mentioned in the first answer and start doing the right thing and paying those taxes. Every once in a while, you hear a “nannygate” story about a Supreme Court justice nominee or some other high-powered political aspirant who loses his or her chance at an influential position because he or she failed to pay taxes for a nanny or other hired help.
And here is one final message directed at your nanny. Just tell her that you heard from a retired Social Security guy who interviewed hundreds of retiring nannies, maids, and other household workers during his career, most of whom rued their shortsighted decision to forego the payment of Social Security taxes and were stuck facing their senior years with minimal or even no Social Security or Medicare coverage. It’s something she should think about.
Q: We have hired a maid service to clean our house. They show up once a week and spend about four or five hours vacuuming, dusting, etc. We don’t have to withhold taxes from the money we pay them, do we?
A: Probably not. You said you “hired a maid service.” So I’m sure you mean you’ve contracted with one of the many companies that supply maids to households. So you are probably paying the company a fee, and then that company, in turn, pays a wage to their employees and deducts taxes from their paychecks.
But if you did simply hire some person off the street to come in and clean your home, and assuming that person does not run a housecleaning business, e.g., is self-employed, then you must follow the IRS rules outlined in my answer to the first question.
Q: Someone told us we have to pay Social Security taxes for a babysitter we use once every couple weeks to watch our kids while my wife and I have a date night. This can’t be true, can it?
A: No, it’s not true. Assuming you are talking about some neighborhood girl (or possibly a boy) who comes over to your house for a few hours on a Saturday night and sits on your couch texting her friends while your kids are in the other room gorging on snacks and watching TV, then you do not have any kind of tax obligations.