Why More of Your Clients
Will Be Confronting “Nanny Tax” Compliance This Year
Care.com HomePay, Provided by Breedlove
It’s no secret that the vast majority of families employing nannies, senior caregivers, housekeepers and other domestic workers do so without taking into account their household employer tax and payroll responsibilities. While this paradigm has slowly shifted toward compliance over the past few years, there are market and legislative forces in place that could spur thousands of families to begin paying legally for the first time in 2014. And that means you may be asked to help some of your clients get compliant with an unfamiliar section of the tax code.
In order to be prepared, it’s important you understand the three main drivers of this push toward legal pay for household employees.
#1: The individual mandate in the Affordable Care Act
As you know, all Americans are required to have health insurance or pay a fine this year as a result of the individual mandate in the Affordable Care Act. Since most domestic workers don’t have access to a corporate health insurance plan, there is a high likelihood they have signed up through the exchange. And because they are relatively low wage-earners, most household employees will qualify for a subsidy based on their income level. The catch is, they can’t get the subsidy without having documented wages. We anticipate that many families will be confronted with requests to “get on the books” in time for tax season so they can claim this additional savings.
#2: The Domestic Worker Bill of Rights Movement
The first instance of this state-specific legislation began in New York in 2010 – but has since increased its megaphone. Bills were enacted in 2013 in Hawaii and California that mandate employment protections and benefits for household employees. Currently, there are versions of a Domestic Worker Bill of Rights pending in about a half-dozen populous states and several could pass their own version this year. While the bills have mainly focused on payroll reporting standards and labor law protections (overtime, paid time off and minimum wage), the effect of the bills has been to raise awareness around compliance and professionalization.
#3: Repeal of the Companion Care Exemption for Third-Party Caregivers
Effective January 1, 2015, home care agencies will no longer be able to classify workers as “companions” in order to avoid minimum wage and overtime costs. However, the companion care exemption will still apply for families that employ the caregivers directly. This significant cost advantage will drive more senior care situations – already a rapidly-growing segment – toward private employment. And this means more families coming to you for advice and guidance on how to handle employment taxes – perhaps for the first time.
What does all this mean for the accounting world?
Be prepared for more clients to approach you for help in dealing with a domestic worker’s payroll or taxes. This industry has largely operated in the shadows in terms of reporting wages and filing state tax returns, which means when clients come to their accountant or CPA, there may be several quarters’ worth of back tax returns to file or even amends to be done to these clients’ personal income tax returns. It may be wise to proactively reach out to your clients to make them aware of the above issues so they can start the process of becoming compliant immediately – instead of dropping off the paperwork to your office next tax season. And if you don’t want to deal with the paperwork yourself, there are household payroll and tax specialists like us that can take all the compliance obligations and client support tasks off your plate.
For more information or to partner with a specialist, visit our Care.com HomePay sponsor page: http://accountantsaccelerator.com/sponsors/care-com-homepay/.