2016 isn’t here quite yet, but it feels like it’s already arrived as families begin the planning stages of getting a nanny into their home after the New Year. While there aren’t a ton of changes to payroll or taxes to worry about next year, there are two big ones your families will need to know about:
1) The FICA Threshold Increases from $1,900 to $2,000
Every couple of years, the threshold to withhold Social Security & Medicare taxes (FICA) from a nanny goes up. Starting in 2016, it’s a nice, round $2,000 – which should make it easy to remember for both placement counselors and families. It’s important to remember that this threshold is per calendar year and not over a 12 month period if you end up with a family hiring late in the year next year.
Additionally, you want to pass along this information to families with summer or part-time nannies. Often times, taxes are neglected in these situations because the job isn’t permanent and feels different than a permanent placement. For families that end up hiring multiple nannies throughout the year, the threshold is per nanny, not the total amount of wages a family may pay. So if you happen to have a family that accumulates $1,500 for one nanny and $1,800 for another, they wouldn’t need to withhold any FICA taxes from either nanny or pay any of their own.
2) More Clarification on Employee vs. Independent Contractor
We know nannies are considered employees of the families they work for, but we still see quite a bit of push-back because the IRS’ test for control can be a little subjective or vague. Some families insist that they can treat the nanny as an independent contractor because they’ve read about it somewhere online or had a friend handle taxes in that matter. And let’s be honest, most families aren’t willing to go through the process of filling out a Form SS-8 and waiting weeks or months for the IRS to respond with a formal ruling on employee vs. independent contractor.
Well finally a few weeks ago, the Department of Labor weighed in on this matter and gave additional guidance on what makes someone an employee. There were six factors identified, but only two really ring true for families hiring a nanny. The first is economic dependence, which simply means the worker gets a substantial portion of their income from the job. Nannies fit this because they usually work for one, maybe two families at a time. An independent contractor would work for many families and if they lost a job, it would be no big deal to them financially while they replaced that client.
The second factor is called permanence, which refers to how the job is structured. Nannies are hired by a family and expect to work until something unforeseen happens – usually the nanny quits or the family no longer needs them. Independent contractors typically have a set schedule to begin and end a job with a client, even if it lasts for months. You may be saying, “families hire short-term nannies all the time,” but remember, the IRS’ rules for control still apply in all employment situations. The nanny would still be viewed as an employee because the family is setting the schedule and how the nanny performs her job.
Feel free to use these two factors as extra ammunition when families push back on this topic. It’s important that they have sound advice from people they trust and they obviously place a large amount of trust in your agency if they’re letting you help them find someone to work in their home around their children.
And please continue to send all tax and payroll-related questions our way. We know it’s a busy time for your agency and it can be time-consuming trying to communicate household employment topics when that’s not what you really want to be spending time on. Our HomePay tax experts will take as much time walking a family through their federal, state and local obligations as they need in order to feel comfortable establishing payroll for their nanny.
We sincerely hope the end of 2015 and the beginning of 2016 are very fruitful for your agency. Best wishes from all of us at HomePay and Happy Holidays and Happy New Year!
Tom Breedlove, HomePay Provided by Breedlove