Are you thinking about paying your nanny is an independent contractor? You may want to think again.
In recent weeks, several states have been cracking down on employers who do not play unemployment taxes and misclassify workers as independent contractors.
In Boston, several contractors were recently fined for failure to pay unemployment taxes and misclassifying workers as independent contractors.
And the crackdown isn’t limited to the Bay State.
In California, effective January 1, 2012 a new California law introduced huge penalties for cases of independent contractor misclassification, with fines of up to $25,000 per violation, and potential liabilities for the individuals responsible, as reported by Kathy Webb of www.4nannytaxes.com.
According to www.4nannytaxes.com, currently
a worker who performs services for you is your employee if you can control what will be done and how it will be done. It does not matter whether you give your nanny great latitude, but rather that you have the right to control the work. It does not matter if the work is performed on a full time or part time basis. It does not matter whether the worker lives with you or not. It does not matter if he/she is paid hourly, daily or a salary. It does not matter how the employee refers to herself or how you refer to him/her in an employment contract. The household worker is your employee and you are generally obligated for all payroll tax filings and remittances.
The IRS articulates strict guidelines that differentiate employees and independent contractors to further eliminate confusion. Nannies and other domestics are generally considered employees (Refer to IRS Publication 926: Household Employers Tax Guide). Remember, how the employee refers to herself or how you refer to her in an employment contract is immaterial. You are obligated for all payroll tax filings and remittances if you pay the worker $1700 or more in the calendar year (2009).
This rate increased to $1800 in 2012. The IRS has no statue of limitations when auditing and collecting nanny payroll taxes if you file false/fraudulent returns.