If you're among the 300,000 or so Americans who file a Schedule H with their tax return, you can pat yourself on the back for paying your nanny (or other household employee) on the books. Alas, the rewards for your honesty are extra paperwork and deadlines, thanks to the new tax rules that took effect Jan. 1.
For the first time, you must pay your federal household employment taxes, including Social Security and Medicare, throughout the year rather than annually with your tax return. If the extra taxes cause you to owe $1,000 or more when you file your return, you'll owe the IRS a penalty (unless the total tax you paid during the year is at least equal to what you owed last year or 90 percent of this year's total liability).Wage earners who are behind on this year's "nanny taxes" can increase their withholding now by filing a revised Form W-4, and the IRS will treat the payments as if they were paid evenly throughout the year. But when you make quarterly estimated payments, the IRS expects you to settle up each quarter. So if you owe, you may have already incurred a penalty.
Rather spend time with your kids than with tax forms? There's plenty of professional help available.
- HAND OVER THE JOB. For $325 a year, Breedlove & Associates (800-723-9961) can register you as an employer, figure what you owe for unemployment insurance and how much you need to withhold from your employee's pay, and prepare signature-ready tax returns and W-2s.
GTM Associates (888-432-7972; $364 to $468 a year) and Home Work Solutions (800-626-4829; $315 a year plus a one-time $100 registration fee) provide similar services. For an additional charge, all three companies will also prepare pay stubs and cut paychecks or arrange direct deposit.
- PUT SOFTWARE ON THE TASK. For do-it-yourselfers, Breedlove & Associates publishes Homerun ($149), an easy-to-use program that can help you prepare federal and state tax returns, unemployment-insurance forms and W-2s. It also generates payroll checks and reminds you of due dates.
If you just need help calculating withholding amounts and keeping track of what you've paid in wages and taxes, try NannyPay, by Essentia Software (888-999-1722). You can download the program (www.essentia-soft.com) and try it free for 30 days. After that, it costs $24.95.