• Employment History. A legitimate employment history is critical to daily life. It is required for a car loan, a mortgage, a student loan, a credit card application, a health insurance application, an auto insurance application, future job applications, etc. If your employment is not documented, it’s as if you don’t work.? 

A Real Life Example:?  Jill earns $2,000 per month as a nanny but is paid illegally.?  She and her husband applied for a mortgage on their first home.?  Since Jill’s employment is not documented, the bank does not count her income – and they cannot qualify with only the husband’s income.?  In order to qualify, Jill has to put her salary “on the books” and wait 6 months before submitting a new loan application.

• Unemployment Insurance. As a taxpayer, you are entitled to receive approximately 50% of your salary for up to six months if you lose your job due to no fault of your own. This benefit is free to you, as your employer pays for the cost of the program through quarterly unemployment taxes.

A Real Life Example:?  Jane lost her $500 per week job as a nanny when her family moved.?  Since Jane was paid legally, she receives $250 per week in unemployment benefits while she looks for a new job.? 

• Social Security/Medicare Benefits. Every taxpayer contributes 7.65% of their wages into their retirement account with the Social Security Administration. In addition to the employee’s contribution, the employer provides a dollar-for-dollar match. With these employee and employer contributions, plus the compounding of interest over time, employees will accumulate a significant nest egg which will help take care of them in their elderly years. (Nannies who are paid illegally are not entitled to any retirement benefits; sadly, there are many nannies around the country in this situation who will find it financially impossible to ever quit working).

? A Real Life Example:?  Barb earns approximately $30,000 per year.?  Over a 35-year career, she contributes about $80,000 to Social Security.?  When she retires, she will receive approximately $375,000 in Social Security benefits during retirement, assuming she lives until age 85.?  That’s a tremendous investment!

Many nannies don’t discuss this subject with their employers because they’re afraid it will be very expensive and/or difficult for their family.?  In reality, doing the right thing can be simple and inexpensive.?  Families who pay legally are entitled to significant tax breaks, which offset most – if not all – of the employer tax costs and there are services like Breedlove & Associates which eliminate all the paperwork headaches.

? Information supplied by Breedlove & Associates. Founded in 1992 – by household employers for household employers – Breedlove & Associates is a full-service, full-support tax & payroll service. ? They have served more than 11,000 clients and processed more than $1 billion in household payroll.?  For more information regarding employment taxes?  call 1-888-273-3356 or visit www.breedlove-online.com.

As a childcare professional, you have one of the most important and noble jobs in the world – to nurture, protect, educate, guide and inspire children.?  You should view yourself – and demand to be treated – as a professional.?  In part, this means making sure that your compensation is handled accurately, fairly and legally.

? This is especially important for nannies because most families who employ nannies have a limited understanding of the payroll and tax laws governing household employment.?  As a result, it is common for families to incorrectly withhold & remit their nanny’s taxes or to misclassify their nanny as an “independent contractor” by providing a Form 1099 at the end of the year. ? Both scenarios are illegal and potentially expensive and time-consuming for everyone involved.?  Worse, they end up depriving nannies of the benefits that other professional workers enjoy.

? To avoid these types of situations, it is important to understand the basics of the tax process:

• ? Your employer withholds Social Security & Medicare (collectively known as FICA) from your gross wages at a rate of 7.65%.
• Your employer also withholds federal income tax from your gross wages (the exact tax rate depends on how many allowances you choose on Form W-4 and your marital status). By withholding federal income taxes each pay period, you are making pre-payments against your year-end tax liability so that, at the end of the year, you will end up with a very small payment – or better yet, a small refund.
• The family remits your FICA and federal income taxes each quarter – along with a dollar-for-dollar match of your FICA taxes (both your portion and your employer’s portion go directly into your retirement account with the Social Security Administration…because of the employer matching and the compounding of interest, most nannies will receive nearly $5 for every $1 they contribute!).
• The family pays a few small employer taxes, including unemployment taxes, which provide you with financial assistance in case of unemployment.
• ? The employer provides you with a Form W-2 at the end of January. This form itemizes your earnings for the tax year as well as all your pre-paid taxes. You use Form W-2 to complete your personal income tax return.

………Next time we will discuss the benefits of being paid legally!

Information supplied by Breedlove & Associates. Founded in 1992 – by household employers for household employers – Breedlove & Associates is a full-service, full-support tax & payroll service. ? They have served more than 11,000 clients and processed more than $1 billion in household payroll.?  For more information regarding employment taxes?  call 1-888-273-3356 or visit www.breedlove-online.com.

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