Filing taxes for child care

The new year is here, and many families are settling back down from the holiday rush. But for the millions of families that hired a nanny, babysitter, or other childcare professional to work in their home last year, there’s still work to do before they can say goodbye to 2014. That’s because the IRS considers any family that pays $1,900 or more to one of these employees to be a household employer with tax responsibilities similar to many businesses.

The majority of these responsibilities have already been met, but below are what families should do between now and the April 15 tax-filing deadline to make sure their taxes and their employee’s taxes are properly taken care of:

By Jan. 15, send your fourth estimated tax payment to the IRS. You will use IRS Form 1040-ES to send the Social Security, Medicare, and federal income taxes you withheld from your employee during the months of September, October, November, and December, as well as pay the Social Security, Medicare, and federal unemployment insurance taxes you owe as a household employer.

NOTE: Families are allowed to include this 1040-ES payment with their personal income tax return. However, there is a risk the family could be assessed an underpayment penalty due to the IRS’s safe harbor rules.

File your state tax returns (generally) by Feb. 2. All families must file their state unemployment insurance taxes and most will also file state income tax returns (if they live in state with income taxes). However, the frequency the family has to file and the deadline may not be the same for all families. Generally, state unemployment insurance and state income tax returns are filed quarterly and due by the last day of the month following quarter close. However, this year that day falls on a Saturday, and many states will allow one additional business day for returns to be filed. That means families will need to file their fourth quarter state tax returns no later than Feb. 2. To check the requirements in your state, visit www.myhomepay.com/Answers/RequirementsByState.

NOTE: If you live in a state with income taxes, you may also be required to file an annual reconciliation form. The form simply summarizes the state income taxes you withheld from your employee during 2014.

Prepare and send your employee a W-2 by Feb. 2. You have the option of mailing the W-2 or giving her the form in person, but she’ll need it to file her personal income tax return. The W-2 lists the wages she earned from you and the taxes you withheld from her pay throughout the year. Like the state returns, normally W-2s are due on Jan. 31, but the IRS allows an additional business day to take care of this requirement since the due date is on a Saturday.

Send Form W-2 Copy A and Form W-3 to the Social Security Administration by March 2. These forms list the same information as the W-2 form you provide your employee. The Social Security Administration uses these forms to give her credit toward her eventual Social Security income and Medicare during her retirement years.

Note: Families that file their W-2 Copy A electronically have an extended deadline of March 31 and do not have to file a W-3.

Attach a Schedule H to your personal income tax return. A Schedule H is used to summarize the Social Security, Medicare, federal unemployment insurance and federal income taxes sent to the IRS throughout the year. The total household employment taxes you paid for 2014 should be entered on line 60a on your personal income tax return.

Once these items are checked off your list, you’ve completed all your household employer tax responsibilities for 2014! Additionally, you’ve helped your employee both in the short and long-term, because paying legally allows her to have the following benefits:

Employment history. An employment history is required for a car loan, a mortgage, and other lines of credit. If your employment is not documented, it’s as if you don’t work.

Unemployment benefits. When paid legally, employees are entitled to receive approximately 50 percent of their salary for up to six months if they lose their job due to no fault of their own.

Social Security and Medicare benefits. When your employee retires, she’ll receive money for living and medical expenses. How much she receives is based on how much is paid into her Social Security account. Those who are paid under the table don’t receive any retirement benefits, so they’ll never be able to stop working.

Healthcare subsidies. The Affordable Care Act requires all individuals to have health insurance or pay a fine. If your employees purchases an individual policy on the health insurance Marketplace and is paid on the books, they could qualify for a subsidy to reduce the cost of their premiums.

It is tax season, and the experts at Care.com HomePay can offer excellent helpful insight.