Unraveling the mystery of nanny taxes (and the Denver moms who are helping you do it)
posted by: Amber Johnson
When you are trying to juggle a million things at once, we all know how helpful it can be to have help at home. But I’ll admit that I’m rather ignorant when it comes to the rules for employing someone in my home like a nanny, babysitter, or housekeeper. So, I was thrilled to get the inside scoop from Denver mom and CPA Katie Stoll, co-founder of Poppins Payroll.
Like many moms, when her daughter was born she hired a nanny because she worked full-time. Because of her training as a CPA, Katie knew that the if you pay more than $2,000 a year to anyone you employ in your home, like nannies, babysitters, housekeepers, and other caretakers, the IRS considers them your employee, and not an independent contractor. Which means you have to deal with complicated household employment taxes, or “nanny taxes.”
“It was important to us to withhold taxes from our nanny’s paycheck–not only to follow the law and avoid an IRS inquiry, but for the benefit of our nanny,” says Katie. “She gets money put towards her social security, medicare and unemployment funds if we pay legally. The same benefits that everyone else gets in their workplace.” Plus if you pay legally, you can take advantage of tax breaks which can offset or even exceed the additional cost.
But does the mere mention of the word taxes make your head spin?
Complying with the nanny tax is not for the faint of heart. You must basically run payroll and taxes like a company. Among the many complexities, every payday you would need to calculate and withhold various taxes. You then also remit those certain taxes to the various agencies at different deadlines. And what about staying informed of the ever-changing tax laws?
For 2019, the threshold for household employees was $2,100; meaning that if you pay a household employee, such as a nanny, more than $2,100 a year to perform work in your home the IRS says you are a household employer and must pay taxes. In 2020, that limit has changed to $2,200.
Even the IRS thinks it’s complicated. In fact, the IRS estimates that it would take 60 hours a year to do your own nanny taxes. Even if you could find the time, what if you’re clueless about how to do this as an employer?
Enter: Poppins Payroll
Poppins Payroll was founded by two moms who were looking for a simple and affordable solution to the confusion that is household payroll. Poppins Payroll takes care of all of your household employer obligations and best of all, it’s only $39 a month. That is money very well spent. Other providers such as care.com‘s Homepay charge $92/month for the same service. Yikes!
And the best news of all? Not only do you get tax professionals making sure you stay 100% in step with the complicated tax laws, but Poppins is easy to use and has an intuitive (and super adorable) user interface so that everything is done online – no more forms every payday. According to Katie, “We have already seen that our users love it. About 50 percent of our users were referred to us by an existing user. That’s pretty awesome!”
What else is awesome? Right now Poppins Payroll is offering the first month for free.
Allyson Patterson of Boulder knows all too well the challenges of employing someone in your home. “Poppins Payroll is an extremely helpful and convenient service for our family. As first time nanny employers, we were unaware of the associated tax requirements, such as applying for an EIN, the numerous tax deadlines and associated forms. Poppins walked us through the process online and submits our nanny’s withholding electronically. Set up was intuitive and fast. Our questions are always answered quickly and in a way I can understand. We also have easy access to payroll information and documents in the online portal. I am happy to have found Poppins and not have to worry about the nanny taxes at all.”
Because don’t moms have enough to worry about already?
In partnership with Mile High Mamas.