When a nanny, housekeeper or senior caregiver is paid legally, they are entitled to certain benefits that are earned through the payroll and tax process. But because many household employees are younger in age, sometimes they don’t realize how important these benefits are. In this edition of The Legal Review, the Hanson family finds themselves in a big mess after their long-time nanny decides she’s ready to stop working.

The Situation

The Hanson family lives in upstate New York and has employed a nanny named Bonnie for the past four years. Unlike most nannies, Bonnie was 60 years old when the Hansons hired her, but had a wealth of experience with childcare as she was a stay-at-home mom for most of her life. Before working for the Hansons, the only job Bonnie ever had was working in a local retail shop for 8 years. With her upbeat personality and her love for children, she was a great fit for the Hansons after their first child was born and they were ecstatic to hear she would take on the challenge of a second child two years later.

The Mistake

When the Hansons first hired Bonnie, they asked their neighbors how they handled hiring a nanny for their kids. The Hanson’s neighbors explained they paid their nanny like they would a babysitter and gave her cash at the end of each week. Bonnie agreed with this arrangement and she was paid in cash every Friday for four years.

The Law

When a family hires a household employee to work in their home, they are required to withhold Social Security & Medicare (FICA) taxes from their employee’s pay each payperiod. Federal and state income taxes – while not explicitly required to be withheld – should be deducted as well to ensure the employee does not get stuck with a large tax bill during tax season. The family is also required to pay a matching portion of FICA taxes, as well as federal and state unemployment insurance taxes. Some states, like New York, also require additional taxes to either be withheld from an employee or paid by an employer. Please visit our state-specific pages for details on the taxes in your state.At the end of the year, the family is required to prepare a W-2 for their employee so they can file their personal income tax return. The family is also required to file Form W-2 Copy A and Form W-3 with the Social Security Administration and prepare a Schedule H to attach to their personal income tax return.

The Mess

After four years of working for the Hansons, Bonnie was 64 and nearing the age for retirement. In trying to prepare for this exciting time, she enlisted the help of a local CPA to gauge what her benefits would be so she could budget for the next chapter of her life. Unfortunately, when the CPA learned Bonnie had no employment records for the previous four years, he had to be the bearer of bad news and told her she was ineligible for Social Security benefits. This is because the Social Security Administration (SSA) requires a minimum of 40 credits (or 10 years of work) to be accrued before a person can earn retirement benefits – and Bonnie could only prove she had eight years in retail.

Bonnie was confused and asked the CPA how she could get credit for the last four years of her working career so she could retire at the end of the year. The CPA explained that the Hanson family would need to catch up on four years’ worth of payroll reporting and tax returns in order for the SSA to approve Social Security benefits for her. With this information in hand, Bonnie approached the Hansons, who were understandably embarrassed and guilt-ridden at the thought of their long-time nanny not being able to retire on her schedule.

The Outcome

The Hansons wanted to help Bonnie in any way they could. After four years working in their home, she was a valued member of their household and a grandmotherly figure to their children. The CPA Bonnie consulted with happened to have a couple of clients with household employees and told the Hansons to contact Breedlove & Associates about the late tax returns. While he knew the steps they needed to take to make everything right for them and Bonnie, he wasn’t interested in taking on four years’ worth of payroll and taxes.

The Hansons called Breedlove & Associates the next day and we were able to get them caught up on their employer taxes. We set them up as household employers with the IRS and the state of New York, gathered the four years’ worth of payroll information for Bonnie, filed the late tax returns, and best of all, sent tax information for the family and Bonnie to the Social Security Administration so Bonnie could get the working credits she needed for retirement. The family unfortunately incurred thousands of dollars in back tax payments and interest, but we were able to get the state of New York to waive the majority of the penalties they assessed. Bonnie will turn 65 in November and she’s now set up to retire just in time for the holiday season.

 How the Whole Thing Could Have Been Avoided

If the Hansons had verified what their neighbor said via an accountant or even a simple Google search, they would have realized paying Bonnie in cash was not the right course of action. When families become household employers for the first time, they often have a laundry list of questions. It’s important that they are steered toward a resource that can set them up for success. We’re always available for your clients when they need this initial consultation and it’s free for them to call. Sometimes a ten minute conversation can save a family like the Hansons thousands of dollars.
Thank you to our partners at Breedlove for this guest blog. Here at Caring Nannies, we have a story of our own about nannies ready to retire after a 40 year career, with no Social Security benefits and with poor health. Obama has made it a wash for families who deduct taxes. Check it out with Breedlove and you’ll be surprised how inexpensive it is to do it right. You’ll sleep better at night and if your nanny needs to purchase a new car or a home, she can do it because she has a valid job.

Built by household employers exclusively for household employers, Breedlove & Associates provides a no-work, no-worry solution to paydays, tax time and all points in between.  If you have any questions about household employment or want to take advantage of our complimentary New Employer Orientation, just give us a call.   We’re here to help.

Beth Weise

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You may have seen Stephanie Breedlove featured in a Wall Street Journal story recently recently about “nanny tax amnesty.” The technical term the RS is using is Voluntary Classification Settlement Program (VCSP) and this is very relevant to the household employment industry. In our experience, there are 2 very common mistakes families make when hiring a household employee:
1) They misclassify their employee as an “independent contractor” by giving them a Form 1099. (Worker misclassification is considered tax evasion for the family. Meanwhile, it increases the employee’s tax rate and limits her benefits).

2) They fail to withhold taxes and report wages properly. (Also known as “paying under the table,” the IRS considers this tax evasion too. It carries similar risk for the family and denies all benefits to the employee).
The VCSP helps with the first mistake because it is designed to allow employers who have

misclassified their employee to come clean with very minimal penalties compared to what the IRS usually levies. By filling out the appropriate forms and paying the subsequent penalty, the employer agrees to treat the “independent contractor” as an employee moving forward and is not subject to an IRS audit.
For families who are currently misclassifying their household employee and want to correct the mistake, we recommend speaking with an accountant who will be able to assist in filing the correct paperwork to complete the VCSP. To take advantage of this amnesty offer, you must file by June 30, 2013.
For families currently paying their household employee “under the table,” Breedlove & Associates is happy to provide a simple, cost-effective solution that serves as an “amnesty program.” Lobbying on behalf of clients, we have an excellent track record of getting the penalties waived for first-time offenders.
As with any tax matter, it is much cheaper and easier to rectify a mistake if you come forward prior to an audit – and these “nanny tax” mistakes are prime examples of that IRS philosophy.
If you have any questions about these amnesty initiatives, please don’t hesitate to call us at 1-888-273-3356. We’re here to help.Breedlove and Associates, guest blogger

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Here’s what you need to know for the new year:

  • The Payroll Tax Holiday Has Expired. The social security tax has reverted to its traditional 6.2% (it was temporarily reduced to 4.2% in 2011 and 2012 in an attempt to stimulate consumer spending).  The change will decrease take-home pay for all U.S. workers.  Your full-time nannies will see a change of about $10-$15 per week, depending on their income level.
  • The FICA Reporting Threshold Did Not Change. The $1,800 threshold has been extended through 2013.  Families who pay a worker less than that amount are absolved of the FICA reporting responsibilities under the “casual babysitting exemption.”
  • The Federal Mileage Reimbursement Rate Has Increased.  The rate for mileage reimbursement increased by one penny per mile.  It’s now 56.5 cents for each mile an employee drives on the job.


We are very pleased to announce a major breakthrough in our long-time quest to provide families with simple, affordable  access to workers’ compensation insurance.

We’ve always educated families on workers’ comp and guided them to the best solution for their situation/state.  However, in recent years, the solution options have dwindled.  More and more families have complained that finding an affordable, stand-alone policy is difficult.  In some states, it’s next to impossible.

So, we decided to take control of the situation.  After more than a year of research and meetings and due diligence, we have teamed with PMC Insurance Group and an A-rated underwriter to help them create HomeStaffPROTECT — the first and only workers’ compensation insurance product custom-built to meet the unique needs of nanny employers.

Since we worked closely with PMC Insurance Group to develop HomeStaffPROTECT, Breedlove clients will have exclusive access to this stand-alone workers’ comp product.

It will be extremely convenient.  With instant online quotes and a pre-filled online application (pre-filled from their Breedlove payroll data),  obtaining a workers’ compensation policy will take families less than 5 minutes.

If you’re wondering about cost, you’ll be pleased to know that HomeStaffPROTECT will be a low-cost leader.  PMC is a wholesale provider and Breedlove does not take any commissions or mark-ups or charge any administrative fees.  So, our mutual clients can rest assured that they’re getting the best price possible.

Finally, we’ve gone to great lengths to ensure that customer service and claim support are handled with the same level of expertise and responsiveness we deliver on our payroll service.

HomeStaffPROTECT is licensed in 24 states (which includes all of the “problem” states) with more states coming soon.  In all of the other states, we’ll continue to educate and guide as part of our setup process.  The bottom line is we can now ensure — one way or another — that families in every state have a convenient, cost-effective solution to workers’ comp.

We’re excited to bring the combination of high quality, high convenience and low cost to the workers’ compensation insurance market as a way to help families and nannies receive this important protection.

If you or your families have any questions about workers’ compensation insurance, just let us know.  We’re here to help.

Guest Blogger, Tom Breedlove


$1,800: Annual wage threshold for Social Security & Medicare (“FICA”) reporting

$1,000: Quarterly wage threshold for Unemployment reporting (some state thresholds are lower)

$2,500: Total childcare tax breaks available for families

1.5: Overtime rate of pay when work week exceeds 40 hours

$0.565: Federal mileage reimbursement rate

$7.25: Federal minimum wage (some state rates are higher)

$2: Approximate daily cost to have Breedlove & Associates handle all payroll and tax compliance duties with no work and no worry.


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