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Anonymous wrote:Anonymous wrote:Anonymous wrote:One year, my bonus was taxed and it pushed my income over a certain amount and I missed out on a tax break.
It's considered income so why would you expect otherwise? If a bonus was tax-free, everyone would be getting minimal wages and huge bonuses.
I am learning that a lot of families actually do this! Or, what they do is pay the nanny "on the books" for minimum wage, and the rest off the books. This usually results in a lower hourly rate for the nanny, but more take home, and less tax liability for the parents, but they still get the child care tax credit because they're paying that much "on the books."
Major downsides to this: illegal, nanny's social security account takes a huge hit, nanny can't prove income for loans, etc...
Also when the job ends, nanny either:
1. reports the TAXED part as her income and gets a much smaller unemployment benefit
2. Reports both parts - taxed and untaxed - so she can get a bigger benefit, and the family then has to answer to unemployment about what is what.
OP See the question how do Nanny Taxes effect my personal tax return:
http://www.homeworksolutions.com/answers-to-the-most-frequently-asked-questions-about-your-annual-payroll-tax-filings/
http://www.homeworksolutions.com/answers-to-the-most-frequently-asked-questions-about-your-annual-payroll-tax-filings/
In the DC metro area, OT is after 40 hours in a 7 day work week. The after 8 hours a day is a California rule.
Sorry, legally the cash value of a gift card is taxable income just like a cash bonus. 
Your contract has to have all of the information on the notice - I cannot tell you for sure whether your's works or not. And both you and your nanny have to have a signed copy, which I assume you both do.
The DC Wage Theft Prevention Act goes into effect this week, and household employers are required to provide their household workers (nannies, maids, housekeepers, etc.) with a pay rate notice no later than March of 2015. More information, including compliant notices, is found here:
http://www.info.4nannytaxes.com/blog-0/bid/104280/DC-Enacts-Wage-Theft-Prevention-Legislation
http://www.info.4nannytaxes.com/blog-0/bid/104280/DC-Enacts-Wage-Theft-Prevention-Legislation
Anonymous wrote:But if you pay the insurer directly, you're not reimbursing for anything. It's additional money. No one is eligible for a subsidy, either. The question is, does it now have to be taxed?
Yes, if the policy was purchased on the individual exchange (not through SHOP) the additional money is taxable income to the nanny.
Anonymous wrote:I'm not familiar w/ SHOP. But we do subsidize our nanny's healthcare, and we helped her find good coverage. But - I think healthcare is a personal thing and not necessarily something you need or want to be this involved in.
Your nanny can find/select/purchase health insurance through the exchange and probably qualify for significant discounts based on income. You can then reimburse her for the cost of the monthly premiums. That reimbursement is not considered taxable income so you handle it separately from payroll.
This lets your nanny remain in control of healthcare decisions, keeps you from getting overly involved, and allows you to offer the benefit.
Sadly if you provide financial premium support for a policy your nanny purchased on the individual exchange that IS taxable income to her. The only non-taxable route is the SHOP.
Links to the IRS and US DOL "from the horses mouth" guidance on this are found here: http://www.info.4nannytaxes.com/blog-0/bid/104545/household-employers-a-conversation-on-the-affordable-care-act
OP what you are doing vis a vis the taxes appears to be incorrect FYI.
See http://www.homeworksolutions.com/nanny-shares-how-do-we-handle-the-taxes-if-we-share-a-nanny-with-another-family/
See http://www.homeworksolutions.com/nanny-shares-how-do-we-handle-the-taxes-if-we-share-a-nanny-with-another-family/
Anonymous wrote:The secondary question, though, is whether or not it's legal to only give the employee that money with "strings." That is, is it legal to give someone taxable income that can only be used for one thing, or must it be unrestricted?
I am taking this afternoon to figure out which is more cost effective and offers the better policies: going through SHOP with higher premiums but tax credits, or going through the exchange with a taxable reimbursement.
The thing is, I am not going to give her money to do whatever she wants with; I am only willing to pay this extra amount if it goes to health insurance. That may mean SHOP is the only option.
I cannot give you legal advice on this (my disclaimer!); however the conventional wisdom is that you cannot pay wages and require that the wages by used for a specific purpose. There is a discussion about this online at the NYT: http://boss.blogs.nytimes.com/2014/09/29/can-a-company-reimburse-employees-who-buy-their-own-health-insurance-maybe/?_r=0
There is a lot of bad advice written earlier this year online; the IRS' original ruling referred to "large employers" and many interpreted the ruling to only apply to the large (>50) employers. In November the US DOL's FAQ clearly stated this ruling applies to ALL employers. Like many things ACA, there is a lot of confusion in the marketplace. HWS is now firmly convinced that the only tax advantaged way to contribute to an employee's health insurance premium is via the employer SHOP. The theory is that employees who purchase individual policies may be eligible for premium support via their income taxes, so only "after-tax" wages may be used to pay for these policies.
It is ugly, but sadly true.
Sadly, it is true that only insurance the employer purchase through the SHOP remains non-taxable. If your nanny bought her policy in the individual marketplace, and you reimburse all or part, that reimbursement is taxable income.
From the horses mouth:
http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements
There was a lot of confusion and push back about this through the early part of the year because the IRS ruling at the end of last year kept referring to large employers. More guidance was issued this fall. However, it applies to ALL employers. The intention was to keep employers from ditching their group plans (get out of offering health insurance) and instead establish a reimbursement plan to provide employees a fixed contribution, tax free, and let them buy what they wanted. Good idea in theory, the practice has in fact meant that small employers who have never had a group plan and have historically provided premium support tax free, can no longer continue on that path legally.
Here is what was clarified in November: http://www.dol.gov/ebsa/faqs/faq-aca22.html
To quote:
"The Departments' guidance further clarifies that such employer health care arrangements will not violate these market reform provisions when integrated with a group health plan that complies with such provisions. However, an employer health care arrangement cannot be integrated with individual market policies to satisfy the market reforms. Consequently, such an arrangement may be subject to penalties, including excise taxes under section 4980D of the Internal Revenue Code (Code)."
Sorry to be the bearer of bad news.
From the horses mouth:
http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements
There was a lot of confusion and push back about this through the early part of the year because the IRS ruling at the end of last year kept referring to large employers. More guidance was issued this fall. However, it applies to ALL employers. The intention was to keep employers from ditching their group plans (get out of offering health insurance) and instead establish a reimbursement plan to provide employees a fixed contribution, tax free, and let them buy what they wanted. Good idea in theory, the practice has in fact meant that small employers who have never had a group plan and have historically provided premium support tax free, can no longer continue on that path legally.
Here is what was clarified in November: http://www.dol.gov/ebsa/faqs/faq-aca22.html
To quote:
"The Departments' guidance further clarifies that such employer health care arrangements will not violate these market reform provisions when integrated with a group health plan that complies with such provisions. However, an employer health care arrangement cannot be integrated with individual market policies to satisfy the market reforms. Consequently, such an arrangement may be subject to penalties, including excise taxes under section 4980D of the Internal Revenue Code (Code)."
Sorry to be the bearer of bad news.
Anonymous wrote:But if you pay the insurer directly, you're not reimbursing for anything. It's additional money. No one is eligible for a subsidy, either. The question is, does it now have to be taxed?
It doesn't matter - if you pay for a policy from the individual marketplace it is taxable income. To keep it non-taxable you have to go through the SHOP.
http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements
OP you have gotten some good advice. The schedule is long, but not unheard of. I would be careful about hours and your proposed weekly pay rate. Remember as a live out your nanny is entitled to overtime - she gets regular hourly pay as a live in. Also as a live out she has commute time to/from that will make her day longer.
I assumed below that you are in DC - you can run these numbers at 4nannytaxes.com yourself if you live elsewhere.
It can be a matter of perception. Here are a few scenarios. And remember DC minimum wage increases another $1/hour July 1 2015!
Live in 65 hour a week:
Hourly Pay Rate Calculator Results
Your inputs:
Work State: DC
Salary: $730.00
Pay Frequency: Weekly
WEEKLY hours worked: 65
Residential Status: Live In Employee
Results:
The hourly wage being offered is $11.23.
NOTE: The DC Minimum Hourly Wage: $9.50
Suggested Contract Language
Employee Weekly compensation of $730.00 gross, based on an gross hourly wage of $11.23 and a 65 hour work week. Employee guaranteed minimum Weekly compensation of $730.00 gross.
Calculation performed December 2, 2014.
DC Minimum Wage: $9.50 per hour
Live out 65 hours a week (don't know how long the night is)
Hourly Pay Rate Calculator Results
Your inputs:
Work State: DC
Salary: $750.00
Pay Frequency: Weekly
WEEKLY hours worked: 65
Residential Status: Live Out Employee
Results:
The hourly wage being offered is $9.68.
The overtime wage is $14.52
NOTE: The DC Minimum Hourly Wage: $9.50
Suggested Contract Language
Employee Weekly compensation of $750.00 gross, based on an gross hourly wage of $9.68 and a 65 hour work week. Employee guaranteed minimum Weekly compensation of $750.00 gross. Weekly hours worked in excess of 40 per week to be compensated at $14.52 gross per hour.
Calculation performed December 2, 2014.
DC Minimum Wage: $9.50 per hour
Live out 60 hours a week (assuming 2 later mornings?)
Hourly Pay Rate Calculator Results
Your inputs:
Work State: DC
Salary: $750.00
Pay Frequency: Weekly
WEEKLY hours worked: 60
Residential Status: Live Out Employee
Results:
The hourly wage being offered is $10.71.
The overtime wage is $16.07
NOTE: The DC Minimum Hourly Wage: $9.50
Suggested Contract Language
Employee Weekly compensation of $750.00 gross, based on an gross hourly wage of $10.71 and a 60 hour work week. Employee guaranteed minimum Weekly compensation of $750.00 gross. Weekly hours worked in excess of 40 per week to be compensated at $16.07 gross per hour.
Calculation performed December 2, 2014.
DC Minimum Wage: $9.50 per hour
I assumed below that you are in DC - you can run these numbers at 4nannytaxes.com yourself if you live elsewhere.
It can be a matter of perception. Here are a few scenarios. And remember DC minimum wage increases another $1/hour July 1 2015!
Live in 65 hour a week:
Hourly Pay Rate Calculator Results
Your inputs:
Work State: DC
Salary: $730.00
Pay Frequency: Weekly
WEEKLY hours worked: 65
Residential Status: Live In Employee
Results:
The hourly wage being offered is $11.23.
NOTE: The DC Minimum Hourly Wage: $9.50
Suggested Contract Language
Employee Weekly compensation of $730.00 gross, based on an gross hourly wage of $11.23 and a 65 hour work week. Employee guaranteed minimum Weekly compensation of $730.00 gross.
Calculation performed December 2, 2014.
DC Minimum Wage: $9.50 per hour
Live out 65 hours a week (don't know how long the night is)
Hourly Pay Rate Calculator Results
Your inputs:
Work State: DC
Salary: $750.00
Pay Frequency: Weekly
WEEKLY hours worked: 65
Residential Status: Live Out Employee
Results:
The hourly wage being offered is $9.68.
The overtime wage is $14.52
NOTE: The DC Minimum Hourly Wage: $9.50
Suggested Contract Language
Employee Weekly compensation of $750.00 gross, based on an gross hourly wage of $9.68 and a 65 hour work week. Employee guaranteed minimum Weekly compensation of $750.00 gross. Weekly hours worked in excess of 40 per week to be compensated at $14.52 gross per hour.
Calculation performed December 2, 2014.
DC Minimum Wage: $9.50 per hour
Live out 60 hours a week (assuming 2 later mornings?)
Hourly Pay Rate Calculator Results
Your inputs:
Work State: DC
Salary: $750.00
Pay Frequency: Weekly
WEEKLY hours worked: 60
Residential Status: Live Out Employee
Results:
The hourly wage being offered is $10.71.
The overtime wage is $16.07
NOTE: The DC Minimum Hourly Wage: $9.50
Suggested Contract Language
Employee Weekly compensation of $750.00 gross, based on an gross hourly wage of $10.71 and a 60 hour work week. Employee guaranteed minimum Weekly compensation of $750.00 gross. Weekly hours worked in excess of 40 per week to be compensated at $16.07 gross per hour.
Calculation performed December 2, 2014.
DC Minimum Wage: $9.50 per hour
Our 2 cents worth.
Bear in mind we only see the 'declared' bonuses - ones that are taxed. That surely skews our experience.
Whatever you do or don't do, the "Thank you" is an important part of the transaction!
http://www.info.4nannytaxes.com/blog-0/bid/104185/Holiday-Tipping-Ideas-for-Employers-of-Nannies-and-Caregivers
Bear in mind we only see the 'declared' bonuses - ones that are taxed. That surely skews our experience.
Whatever you do or don't do, the "Thank you" is an important part of the transaction!
http://www.info.4nannytaxes.com/blog-0/bid/104185/Holiday-Tipping-Ideas-for-Employers-of-Nannies-and-Caregivers
A nanny who has only been there a short time will not expect a weeks pay at year end. The norm is 1 day's pay per month of employment, up to 5 days total.
Of course bonuses are optional. The above is a typical calculation method - much like 15% is a suggestion for tipping wait staff.
Of course bonuses are optional. The above is a typical calculation method - much like 15% is a suggestion for tipping wait staff.
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