by Michelle LaRowe
Editor in Chief
Recently I had a chance to talk nanny taxes with Kathy Webb of HomeWork Solutions. Since 1993, HomeWork Solutions has been helping parents navigate the nanny taxes and be legal household employers. In addition to helping parents do things right, Kathy and her team is committed to professionalism in the private service industry and can always be found sponsoring educational programming at INA, APNA, DEMA, Nannypalooza and National Nanny Training Day events.
eNannySource: How did HomeWork Solutions (HWS) get started?
Kathy: In early 1993, several Clinton cabinet-level nominees, starting with Zoë Baird, made front page news when it was discovered that they had failed to report and pay employment taxes for their household employees. The term “nanny taxes” was coined, and it became clear that ignoring tax and legal obligations relative to household employment could be both a career limiting decision and the source of major embarrassment.
HWS’ founders were both legal nanny employers, and sensed a business opportunity providing services to help families understand and comply with their “nanny tax” obligations.
eNannySource: What are the top myths regarding paying nannies?
Kathy: Families, and some nannies, believe that they can “decide” that the nanny is an independent contractor – false – or tell us that there are no good nannies who want to be paid legally – also false. We encourage families when interviewing to explore the financial aspects of legal employment before they make a job offer. Our free Nanny Payroll Calculator will help the family understand and communicate both a nanny’s take home pay after tax deductions, as well the family’s obligation for employer funded taxes.
eNannySource: What are the benefits of being paid legally to nannies?
Kathy: The nanny who is paid legally enjoys the financial protections of unemployment insurance, disability insurance and workers’ compensation. These important safety nets insure that a job loss does not become a financial catastrophe. The nanny will also have verifiably income, so important when seeking credit of any kind. When paid legally, the nanny and her employer are both making contributions to her eventual Social Security account – and the nanny actually pays much less in taxes than if she accepts a 1099 form. Lastly, many nannies qualify for refundable tax credits available to low wage earning workers – for many nannies this proves to be a valuable benefit.
eNannySource: What are the benefits for employers?
Kathy: Families may only claim child care expenses on their personal income tax return when the provider’s tax ID number is provided. Whether the family wishes to take advantage of tax sheltered dollars in a Dependent Care Account, or the Child Care Credit, they have to pay legally. More importantly, many would argue, the family avoids the risks – both financial and reputational – associated with being caught evading the nanny tax. Families are most often caught when the job ends and the discharged nanny files for unemployment benefits.
eNannySource: In your 20 years working with families and their nannies, what changes have you seen?
Kathy: 20 years ago most nannies worked in the field as a temporary career before they moved on to college, completed training in other fields or married and started families of their own. Neither they nor their employers saw this as a profession. Today there are tens of thousands of nannies who have been in the field for 10, 20 or more years! More and more nannies and families understand that nannying is a serious profession. Written work agreements, legal payroll, even benefits such as paid time off and contributions to health insurance are common place today.
eNannySource: How hard is it to manage payroll and taxes?
Kathy: The nanny taxes are complicated. Families do not have an HR department and a payroll department to deal with the details. I have seen estimates that a family can spend 80 hours a year in calculating and issuing payroll, becoming familiar with and completing the quarterly and annual tax reports and filings, and dealing with the occasional workers’ compensation or unemployment audit.
eNannySource: What services do you offer?
Kathy: HomeWork Solutions recognizes that different families want different degrees of outsourcing in the payroll and tax compliance arena. In addition to fully outsourced payroll and tax filing services, we also provide more DIY options which allow the family to pay the nanny directly and outsource the tax return preparation and even tax filings to our specialists. We welcome telephone calls (800.626.4829) and offer free, no obligation consultations to new employers. We also encourage people to visit our website, www.4nannytaxes.com, for helpful information and nanny tax related resources.
Kathy Webb is president and co-founder of HomeWork Solutions. She has extensive experience preparing ‘nanny tax’ payroll taxes, is the author of numerous articles on this topic and has been featured in the Wall Street Journal, Kiplinger’s Personal Finance, and the Congressional Quarterly. She also consulted with Senate staffers in the drafting of the 1994 Nanny Tax Law.