Thanks again to Becki Brack and Growing Numbers for answering our questions on care provider pay! Learn more about the services that Growing Numbers offers by clicking here. To reach Becki, you can email her.
Have you heard of any upcoming changes from the IRS, state government, etcetera, that may affect how care providers are paid?
There are no recent developments from the IRS for Publication 926 about household employees. However, there is a new wage threshold for 2018. In 2018, the wage threshold will increase to $2,100 (from $2,000). So if you pay your nanny, caregiver, babysitter, etc. $2,100 or more in a calendar year, you are required to withhold Social Security and Medicare taxes from the individual’s pay. If you fail to do so, you (the employer) are liable for these taxes.
There is also a new Washington state sick leave law that nearly every employer in Washington will have to comply with beginning January 1, 2018. There are also city laws that may apply to household employers within the city limits that are already in effective or effective January 1, 2018. See below for more information on sick leave laws.
Do the new sick leave laws (Washington State or city laws of Spokane, SeaTac, Tacoma, etc.) apply to household employers?
City of Seattle: The city ordinance covers household employees if more than four full time equivalent employees are employed in the household within Seattle city limits, as that would make the family a Tier One employer and therefore subject to the law. Therefore, most household employers are not subject to this city law.
State of Washington: All employees covered by the Washington minimum wage law (RCW 49.46) are covered under the Washington Sick Leave Law. General provisions include all employers must provide one hour of sick time per 40 hours worked, at least 40 hours must be allowed to be carried over year-over-year, and employees are entitled to use sick time upon completion of 90 days of employment. More specific rules about the law can be found on the Labor and Industries website: http://www.lni.wa.gov/WorkplaceRights/Wages/Minimum/1443.asp.
City of Spokane: This city ordinance started January 1, 2017, but specifies that it will no longer be in effect on January 1, 2018 or the date the state-wide law takes effect, whichever is later. Therefore, the city of Spokane sick leave laws will be superseded by the Washington state sick leave law effective January 1, 2018.
City of Tacoma: This city ordinance started in February 2016, applies to people who work 80 or more hours per year within the city limits, and includes similar accrual rules for leave as the state law.
It is important to note that the employer needs to be compliant with both city and state laws. If the city law is more stringent than the state law in accrual requirements for instance, you must comply with the more stringent accrual requirement.
What information and forms do I need to provide to my nanny, babysitter, or care provider (specifically at year end)?
First, you must apply for an Employer Identification Number (EIN). An EIN is a nine-digit number issued by the IRS. It isn’t the same as a social security number (SSN). If you don’t have an EIN, you can apply online: go to IRS.gov and enter “EIN” in the search box, or apply for an EIN by mailing Form SS-4 to the IRS.
Reports/forms you must provide to your employee:
- Form W-2. Give Copies B, C, and two to your employee by January 31, 2018. Send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the SSA by January 31, 2018.
- File Schedule H or IRS Form 941 and 940 during the year to report and pay your nanny’s employment taxes. Either way is specified in IRS Publication 926 as an acceptable method for reporting and paying household employer taxes.
- File schedule H with your 1040 income tax return by mid-April.
- File Form 941 quarterly during the year and Form 940 is due by January 31, 2018, but a deposit is required once the FUTA liability exceeds $500.
- Keep records of the paystubs, including records to support the information you enter on the forms you file (hours, federal tax withholding calculations).
Keep your employment tax records for at least four years after the due date of the return on which you report the taxes or the date the taxes were paid, whichever is later.
If I have worked with a family for 2.5+ years and don’t have a healthcare stipend in my contract, how can I go about asking for one? What are the laws on this topic?
There is no requirement that household employers provide health care insurance or even premium support for their household workers. In accordance with the Affordable Healthcare Act, any employer with fewer than 50 full-time employees is not required to provide health insurance coverage to their staff.
Regarding how to ask for healthcare costs to be covered whether it is a stipend or HRA or otherwise, it is best to talk face-to-face with your employer. Highlight the expense of healthcare costs and why you, as their wonderful employee, deserve the extra compensation.
How do healthcare stipends work? Can a nanny use their healthcare stipend towards natural care (acupuncture, naturopath, etc.) instead of typical health care coverage if they choose to opt out a standard plan?
A health insurance stipend is simply extra money in an employee’s paycheck and is not usually earned based on number of hours but rather a flat amount given to all employees, which they can spend however they choose. Employers cannot legally require employees to spend this stipend on purchase of health insurance or purchase of specific type of care or even qualified health and medical expenses. Therefore, a nanny can spend this stipend towards natural care instead of typical health coverage, as the question is asking.
One of the chief downsides to this approach is that the money is treated as taxable income for the employee. Businesses that provide a health insurance stipend must also pay payroll taxes on reimbursements. Some employees will opt for a tax-free option, such as a health reimbursement arrangement (HRA). Unlike a stipend, an HRA reimburses employees only for qualified individual health insurance and medical expenses so the employee does lose flexibility in choice of how to spend the funds, but gains the benefit of the expense being paid for by pre-tax wages. A health insurance broker or experienced payroll representative should be able to determine which option is best for you.
Disclaimer: This material has been prepared for informational purposes only over the internet, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for any individual, family, or specific entity. The information contained in this post is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved, and tax rules and laws are subject to change at any time. Before engaging in any transaction, you should consult a tax, legal and/or accounting adviser in a direct client-adviser capacity.