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Author: littlesdebtfree Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Domestic Employee Taxes FSA Dependent Care Date: 6/21/2011 11:49 PM
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Help, and I apologize ahead of time for my ignorance. Please be nice! My wife and I have hired a person to watch our children in our home. We have paid her X dollars so far this year. My wife has a FSA dependent care account that now has $2800 available. We are completely ignorant to our responsibilities as "employers" of our "domestic employee." From what I understand, we should be paying the appropriate taxes (medicare, Soc. Sec., Federal & State unemployment?) taxes for both employee and employer, meaning we are expected to pay this % on top of her X salary (it looks like this will come out to be about 15%). So imagine we have paid her $3000, we owe $450 in taxes (about). These taxes have nothing to do with the FSA account correct, i.e. the FSA being tax deferred doesn't mean we are exempt from domestic employee/employer taxes? In other words if we submit a receipt for the FSA $2800 reimbursement with her Soc. Sec. # (EIN) the govt (state and fed) will be looking for the taxes we owe right? What do i need to do now in order to make this all legal?
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113561 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/22/2011 12:54 AM
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My wife and I have hired a person to watch our children in our home.

See IRS Publication 926, which tells you everything you need to know at the Federal level. You'll also need to check with your state.

Phil
Rule Your Retirement Home Fool

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113564 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/22/2011 9:36 AM
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See IRS Publication 926, which tells you everything you need to know at the Federal level.

So what is the answer to the question?

The reason I'm asking is that I like to learn things that don't pertain to me. I may be able to recall the answer if someone in "real life" have the same question. My view of the boards is that answers to questions can benefit more than just the person who asked the question. If all answers are look at Publication x, then only posters who have an immediate need or posters with more time on their hands that they don't know what to do with it are going to look up the answer.

I do recognize that people are volunteers here so you take what you can get. I just wanted to point out that the original poster of a question is not the only person who benefits from the answer.

PSU

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113566 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/22/2011 10:20 AM
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So what is the answer to the question?

OP is an employer with all the tax (and other legal) responsibilities that come with it.

Phil
Rule Your Retirement Home Fool

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Author: EarlyToRise Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113567 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/22/2011 12:23 PM
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OP is an employer with all the tax (and other legal) responsibilities that come with it.

I found this article to be a good start:

http://www.smartmoney.com/personal-finance/taxes/the-nanny-t...

Some excerpts:

"The nanny tax is actually shorthand for three federal employment taxes — Social Security and Medicare taxes (together referred to as FICA tax) and the federal unemployment, or FUTA, tax. You will probably also owe state unemployment tax and perhaps state disability tax as well. Contact the appropriate state agency (listed in IRS Publication 926) and find out what's required."

"FICA tax is the biggest nut — it totals 13.3% of wages. Technically, the employer (you) owes 6.2% and 1.45% for Medicare and the employee (the nanny) owes 4.2% and 1.45% for Medicare. In 2012, the employee contribution for FICA will increase to match the employer."

"FUTA is due on the first $7,000 of the nanny's wages for the year — but only if you paid $1,000 or more in any calendar quarter for the current year or preceding year (2010 and 2009 respectively, if you are filling out your 2011 return). And only if that nanny is not your parent, spouse or under-age-21 child. The good news is that the FUTA rate is usually only 0.8%, assuming you paid the state unemployment tax you owe by April 15 of the following year. If you don't, the FUTA rate jumps to a hefty 6.2% of wages."

ETR

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Author: littlesdebtfree Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113568 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/22/2011 2:06 PM
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Thanks for the information. This is very helpful.

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Author: loopholes One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113569 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/22/2011 5:13 PM
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PSU wrote;
"So what is the answer to the question?
The reason I'm asking is that I like to learn things that don't pertain to me. I may be able to recall the answer if someone in "real life" have the same question. My view of the boards is that answers to questions can benefit more than just the person who asked the question. If all answers are look at Publication x, then only posters who have an immediate need or posters with more time on their hands that they don't know what to do with it are going to look up the answer."

With all due respect, "see Pub 926" is a complete answer. It directs the querant and any other interested person to a thorough and official discussion of what the tax laws require of a taxpayer in the OP's situation. The publication is itself a summary of the applicable laws and regulations. If you don't have time to go read the IRS' summary, what makes you think Phil or any of the other pros has the time to dash off cliff notes for you?

I've noticed that the pros here are always willing to provide additional help to people who, after reading the publication, either have trouble understanding what they've read or have more specific follow up questions. By referring an OP (and all of us lurkers) to a publication, they are not leaving the reader high and dry by any means.

In summary, if you're using this board for your general education, you should expect homework from time to time.

LH

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113570 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/22/2011 7:41 PM
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So what is the answer to the question?
The reason I'm asking is that I like to learn things that don't pertain to me. I may be able to recall the answer if someone in "real life" have the same question. My view of the boards is that answers to questions can benefit more than just the person who asked the question. If all answers are look at Publication x, then only posters who have an immediate need or posters with more time on their hands that they don't know what to do with it are going to look up the answer.


With all due respect, "see Pub 926" is a complete answer. It directs the querant and any other interested person to a thorough and official discussion of what the tax laws require of a taxpayer in the OP's situation. The publication is itself a summary of the applicable laws and regulations. If you don't have time to go read the IRS' summary, what makes you think Phil or any of the other pros has the time to dash off cliff notes for you?


Lest we become a bad remake of Animal House, please allow me a few comments about "how much of an answer is enough?" I speak solely for myself--not for any other frequent question answerers--and, in case someone doesn't know, despite my monniker I have no official TMF function here. (IOW, they don't pay me for this.)

I think everyone has a point. My goal, not always met, is to provide an answer along with a reference for more information and, more importantly, for verification. After all, except for those few Fools I've met, for all anyone knows I could be a Syrian Lesbian blogger getting even.

In this particular case there is so much stuff involved that I just provided a reference, along with a heads up about state concerns. My original response would have been better had it included my "you're an employer" answer to the followup question, but it didn't occur to me at the time. Thanks to EarlyToRise, who had some time on his/her hands and came up with the smartmoney synopsis, which I'm sure was helpful to the OP.

One important note for lurkers. Tax law is full of twists and turns. Change one fact and you can easily come up with a different answer to what looks like the same question that's being answered in a thread. It's rare when all the facts are restated with each post, so be careful not to assume that an answer you see posted fits your particular situation. I hope everyone will "ask before you act."

Everyone play nice, now. This board is noted for its comity, and we should all be proud. For an example of how things can go horribly wrong, pop in to Political Asylum.

Phil
Rule Your Retirement Home Fool

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113571 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/22/2011 7:49 PM
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P.S. It slipped my notice originally that there may be questions about the FSA for dependent care. You deal with that on Form 2441 when you file your return. Details are in Pub 503.

Phil
Rule Your Retirement Home Fool

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Author: Patzer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113572 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/23/2011 8:55 AM
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It slipped my notice originally that there may be questions about the FSA for dependent care. You deal with that on Form 2441 when you file your return. Details are in Pub 503.

I read the interaction of a dependent care FSA with being the employer who hires the people doing the dependent care as a significant part of the original question. However, that's nowhere close to affecting my own situation, so don't do extra research on my behalf.

Patzer

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Author: littlesdebtfree Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113573 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/23/2011 11:15 AM
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Thanks for all the responses. I have found this board to be extremely helpful in a number of ways, even when I felt challenged with a response.

I do have another question. At this point I have not provided the domestic employee with W2 forms. Understanding that I will likely be penalized due to my incompetence, and wanting to make sure that I'm not penalized any further, how should I address this issue?

Secondly, I understand that either employer or employee taxes need to be submitted quarterly, which I did not do for the first quarter but still can for the second (and remaining quarters), but I'm confused with the law as far as it relates the quarterly submissions?

Thanks everybody. Short and long responses are helpful. I certainly understand that I need to do my own homework and that you are all helping to guide me in the right direction. Thanks.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113574 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/23/2011 12:07 PM
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At this point I have not provided the domestic employee with W2 forms. Understanding that I will likely be penalized due to my incompetence, and wanting to make sure that I'm not penalized any further, how should I address this issue?

There is a $50 penalty on the for late W-2's, but I never saw it asserted against someone who messed up out of ignorance. Issue the 2010 W-2 ASAP. I'm not sure whether you can do that before you get your EIN or not. The SSA site www.ssa.gov is the place to go for W-2 information since the original is filed with them.

Secondly, I understand that either employer or employee taxes need to be submitted quarterly, which I did not do for the first quarter but still can for the second (and remaining quarters), but I'm confused with the law as far as it relates the quarterly submissions?

You include your household employment taxes on Schedule H of your 1040, and the liability becomes part of your total 1040 balance due. There are various ways you can avoid a penalty for failing to prepary, including bumping your withholding and making quarterly estimated tax payments. Details are in Pub 505.

Phil
Rule Your Retirement Home Fool

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113575 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/23/2011 1:26 PM
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With all due respect, "see Pub 926" is a complete answer. It directs the querant and any other interested person to a thorough and official discussion of what the tax laws require of a taxpayer in the OP's situation. The publication is itself a summary of the applicable laws and regulations. If you don't have time to go read the IRS' summary, what makes you think Phil or any of the other pros has the time to dash off cliff notes for you?

I know that everyone is volunteering their time here. I don't expect cliff notes. I do appreciate them when they are provided. That is all I am saying. If I read a cliff notes version, I may recall that post when someone like a coworker asks me a similar question.

In summary, if you're using this board for your general education, you should expect homework from time to time.

I use these boards to file general information away in my internal hard drive for possible later use. I'm not using it as a classroom assignment with note taking, homework and a test on Friday. If information is not provided, then it is something I won't learn. I'm okay with that. As I said above, I appreciate it when someone summarizes a question.

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113576 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 6/23/2011 1:27 PM
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for all anyone knows I could be a Syrian Lesbian blogger getting even.

pic

..um..

maybe not needed after all

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113878 of 121061
Subject: Re: Domestic Employee Taxes FSA Dependent Care Date: 8/30/2011 12:27 AM
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With all respect, "see Pub XYZ" is not an answer...its a referral. To that extent, it is another version of Google's 'hits'. The very best answers I've read in response to technical questions on various topics on discussion forums like TMF, come from those who know the material well, can clearly outline the question and its relevant parts, and has the gift of written communication. These are not written to provide definitive answers to specific questions, as more detailed information would be required and the questioned would need to retain the services of the respondent. They are written to educate and to motivate the questioned to derive their own answer as it relates to their unique situation...and if the questioned feels they cannot do this (for whatever reason), to seek professional assistance.

BruceM

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