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You May Owe the "Nanny Tax" Even Without a Nanny

Don’t let the name “nanny tax” fool you. It’s a tax that applies to the wages of a variety of types of household help you hire, such as a nanny, gardener or housekeeper. Hiring extra help can ease the burden of home-related tasks, especially in the summer when the kids are home or the garden needs attention. Unless the worker is an independent contractor, you may be liable for federal payroll tax and other taxes (including state tax obligations).

Where the Line is Drawn in 2025

In 2025, you must withhold and pay Social Security and Medicare (FICA) taxes if your household worker earns cash wages of $2,800 or more (excluding the value of food and lodging). If you reach that threshold, all the wages (not just the excess) are subject to FICA taxes.

However, if a nanny is under age 18 and child care isn’t his or her principal occupation, you don’t have to withhold FICA taxes. So, if you have a part-time, student babysitter, there’s no FICA tax liability.

Both the employer and the household worker must pay FICA tax. As the employer, you’re responsible for withholding your worker’s FICA share from his or her wages. You’re also responsible for paying a matching amount. Specifically, you each pay 6.2% for Social Security, for a total of 12.4%. For Medicare, you each pay 1.45%, for a total of 2.9%.

You can choose to pay your worker’s share of Social Security and Medicare taxes. If you do, your payments aren’t counted as additional cash wages for Social Security and Medicare purposes. But they are treated as additional income to the worker for federal tax purposes. So you must include them as wages when you provide the worker’s W-2 form for the year.

You also generally must pay federal unemployment (FUTA) tax if you pay $1,000 or more in cash wages (excluding food and lodging) to your worker in any calendar quarter. FUTA tax applies to the first $7,000 of wages paid and is only paid by the employer.

You aren’t required to withhold federal income taxes from a household worker’s pay. But you can choose to withhold if the worker requests it. In that case, have them fill out a Form W-4.

How to Pay the Tax Due

You pay household worker obligations by increasing your quarterly estimated tax payments or increasing withholding from your wages, rather than by making an annual lump-sum payment.

As an employer of a household worker, you don’t have to file employment tax returns, even if you’re required to withhold or pay tax (unless you own your own business). Instead, employment taxes are reported on your individual income tax return on Schedule H.

When you report the taxes on your return, include your Employer Identification Number (EIN), which isn’t the same as your Social Security number. You must file Form SS-4 to get one.

However, if you own a business as a sole proprietor, you are able to include the taxes for a household worker on the FUTA and FICA forms (940 and 941) you file for the business. Note, however, that keeping the reporting separate may be preferred from a record-keeping perspective.

What Records to Keep and for How Long

Keep related tax records for at least four years from the later of the due date of the return or the date the tax was paid. Records should include the worker’s name, address, Social Security number, employment dates, amount of wages paid, taxes withheld and copies of forms filed.

Contact the office with any questions about compliance.

Closing a Business? Here's How to Stay on Top of Your Tax Duties

Businesses close for various reasons. Perhaps you’re ready to embark on a welcome change such as retirement or launching a new venture. Or maybe it just no longer makes financial sense to continue operating your current business. Whatever the reason, closing your business is a significant milestone, and part of wrapping things up means taking care of a few tax responsibilities.

Final Income Tax Returns

You’ll need to file a final income tax return and other required forms for your last year of operation. The specific forms you’ll file depend on your business structure:

Sole proprietorships: File Schedule C, Profit or Loss from Business, with your individual return for the year you close. You may also need to report self-employment tax.

Partnerships: File Form 1065, U.S. Return of Partnership Income, and report capital gains/losses on Schedule D. Mark the return and each Schedule K-1 as “final.”

All corporations: File Form 966, Corporate Dissolution or Liquidation, if you adopt a resolution to dissolve the corporation or liquidate stock.

C corporations: File Form 1120, U.S. Corporation Income Tax Return, for the closing year and report capital gains/losses on Schedule D. Check the “final return” box.

S corporations: File Form 1120-S, U.S. Income Tax Return for an S Corporation, for the year of closure and report gains/losses on Schedule D. Mark the return and each Schedule K-1 as “final.”

Regardless of business structure, additional forms may be required if you sell the business, report the sale of business property or record asset acquisitions.

Final Payments to All Workers

If you have employees, you must pay them whatever final wages and compensation are owed, make final federal tax deposits and report employment taxes. Don’t neglect to withhold all income, Social Security and Medicare taxes due and pay these taxes over to the IRS. Overlooking that requirement can result in full personal liability for what’s known as the Trust Fund Recovery Penalty. That’s an outcome to avoid.

Did you pay any independent contractors at least $600 during the calendar year you’re closing your business? If so, you must report those payments on Form 1099-NEC, “Nonemployee Compensation.”

More Loose Ends to Be Tied

If your business has an employee retirement plan, it’s essential to properly terminate it and distribute any remaining benefits. That process comes with its own checklist, including specific notice, funding and filing requirements. The same is true for employee benefit accounts such as Flexible Spending Accounts, Health Savings Accounts and other programs for your employees.

There are additional complex tax matters that may come into play, such as cancellation of debt, using up net operating losses, unlocking passive activity losses, depreciation recapture and even bankruptcy-related considerations. Addressing them can feel overwhelming, but you don’t have to do it alone. Contact the office for help.

Don’t forget about your business records. Depending on the type of records, there are specific rules for how long to retain them. When everything is squared away, you’ll also need to close your IRS business account. Note that while the Employer Identification Number itself is permanent, after receiving confirmation that the business has closed and verifying that there are no outstanding taxes or other issues, the IRS will make the account inactive.

What Else?

If your business is unable to pay all the taxes it owes, there are payment options available. To learn about these options, to ask about specific record retention rules or for any other issues, contact the office.

Reasons and Rules for Filing an Amended Return

Once a tax return is filed, most people breathe a little easier. But it’s not uncommon to realize too late that something was left off a return, figures were misreported or some other error was made. Accuracy is essential, but, depending on the type of error, an amendment may not be required.

Reasons to Amend

Generally, you should amend only to correct reported items such as filing status, dependents, income, deductions or credits.

For example, you should file an amended return if:

• You would have benefited from filing as head of household instead of single,
• You incorrectly reported your number of dependents,
• You received additional or corrected W-2s or 1099s after filing, or
• You realized you qualified for a deduction or credit you didn’t claim.

Filing an amended return may also be beneficial if Congress passes retroactive tax law changes that affect your return.

Errors That Don’t Call for an Amendment

You don’t need to amend your return for math errors. The IRS will correct them. Also, if you forgot to attach a W-2 or schedule, the IRS will request the missing documents directly.

If you get a CP2000 notice (noting underreported income based on discrepancies between what the IRS has on file and what you reported), you shouldn’t need to file an amended return to report that income, even if there are corrections to the adjustments proposed by the IRS.

What and When to File

In general, you can file an amended tax return (Form 1040x) and claim a refund within three years from the date you filed your original return or within two years of paying the tax, whichever is later. For example, if you filed your 2024 tax return on April 15, 2025, you’ll have until April 15, 2028, to file an amendment.

Some exceptions allow more time. For instance, if you’re claiming a bad debt, the statute of limitations is seven years from the tax return’s due date for the year the debt became worthless.

You also may have an extended deadline if you were affected by a federally declared disaster or are eligible for other exceptions.

File a separate form for each year you’re amending and include all relevant forms and schedules. You can amend a return more than once.

Have Questions?

Amending your federal return may also require amending your state return(s). Other tax implications may apply. Contact the office for answers to your questions.

The Tax Impact of Business Bartering

Bartering is simply the exchange of services or property, and it’s a taxable event. For example, if a computer consultant trades services with an advertising agency, each must report income equal to the fair market value of the services they received, typically the amount the service provider would normally charge. The rules are similar when property is part of the exchange. For example, if a construction company accepts unsold inventory as payment, it must report income equal to the inventory’s fair market value.

Some businesses participate in barter clubs that manage these exchanges using “credit units.” Members earn credits by providing goods or services and redeem them later. Generally, bartering is taxable in the year it occurs. However, when participating in a barter club, you might owe taxes when credits are added to your account, rather than when they’re used. Barter clubs must send participants IRS Form 1099-B (Proceeds from Broker and Barter Transactions) by January 31 of the following year.

Business bartering transactions may be beneficial as long as you’re aware of the federal and state tax consequences. Contact the office if you need assistance or would like more information.

What Could Happen if You Don't File a Required Tax Return?

Taxpayers who are required to file a federal tax return but don’t may be in for a costly surprise. If the IRS receives a document like a Form W-2 indicating taxable income, it may file a Substitute for Return (SFR) on your behalf.

Before doing so, the IRS typically will attempt to contact you and encourage voluntary filing. If you fail to file by the deadline, the IRS can move forward with an SFR. The resulting tax bill will likely be higher than necessary because it won’t include deductions or credits you qualify for.

If you receive a Notice of Deficiency with a proposed assessment, don’t delay. Respond within 90 days to avoid further action and additional penalties. Contact the office for help.

10 Small Business Tax Tips from the IRS

To help ensure small businesses take advantage of all potential tax breaks, the IRS Taxpayer Advocate Service (TAS) summarizes the types of tax you may owe and provides a list of 10 federal tax tips.

Among the tips are to separate your business and personal finances, which means establishing business-only bank accounts and credit cards. Another TAS tip, directed at startups in particular, is to correctly classify your business. Choosing the appropriate business structure is important because some enjoy greater tax benefits. But perhaps the most important tips are to know when to get tax assistance from a professional and to choose one who’s knowledgeable and trustworthy.

Read the tips here: https://www.taxpayeradvocate.irs.gov/news/tax-tips/small-business-tax-highlights/2025/04/

Do You Need to Add Users in QuickBooks Online?

Adding a user to QuickBooks Online requires a great deal of trust in that individual. Even if you’re confident in that person’s honesty and sense of responsibility, it makes sense to limit the data they can view, enter, and modify. Your customers and vendors rely on you to keep their sensitive information safe.

To help maintain the integrity of your company file, QuickBooks Online allows you to assign other employees to pre-defined user roles. If you have multiple people working with different levels of access, you’ll know who to talk to if any kind of problem occurs. You undoubtedly trust your workers or you wouldn’t have hired them. But you need to be able to track down any activity that needs investigating.

Designating Roles for Employees

To get started, click the gear icon in the upper right. Under YOUR COMPANY, click Manage users. You’ll see two tabs at the top of the page that identify two types of people who might need access: Users and Accounting Firms. First, a discussion of user roles: You’ll see yourself listed there, usually as the Primary admin. Click Add user in the upper right. On the page that opens, enter the employee’s name and email address in the blank fields. Click the down arrow next to the field under Assign roles.

There are two types of roles:

1. Billable roles count toward your user limit (the number of users allowed by your QuickBooks Online license). They include:

• Standard all access (full access without admin privileges, plus access to Payroll),
• Accounts receivable manager (can see and do everything with sales, customers, and A/R reports) and,
• Standard limited customers and vendors (can see and do everything with Customers and Sales, and Vendors and Purchases).

2. Nonbillable roles are:

• Track time only, and
• View company reports.

Viewing Permissions

Once you select a role, QuickBooks Online spells out what individuals in that role are allowed to do. Below the assigned role field, you’ll see the name of the role you selected and a link labeled View all permissions. Click that to see what’s allowed in every area of QuickBooks Online. You can also click the View role descriptions link above to open a sliding panel with descriptions. At the bottom of that pane, click View role comparisons to see an even more detailed list of permissions in each role.

When you’re done, click “Send invite” in the lower-right corner. You’ll return to the Manage users page, and your employee’s Status will change to Invited. It will change to Active when your worker gets the email and sets up an account with their username and password.

Other Steps to Safeguard Your Data

Restricting access to QuickBooks Online is one way to safeguard your data. There are so many other things you can and should do. System breaches have become commonplace, so it’s important to do what you can to avoid becoming a victim.

These suggestions may be common sense, but are you practicing them?

• If employees are using QuickBooks Online away from the office, be sure to warn them not to log on when they’re getting access through a public Wi-Fi connection.
• It’s tiring to be constantly reminded to update your operating system and other desktop applications, but staying current is critical.
• Make sure your antivirus and anti-malware software is functioning properly. If you use nothing else, at least use Windows Defender. It’s built-in, free and effective.
• If you don’t have to print something, don’t. If you do, store it in a secure place.
• Practice good network etiquette. Don’t click on attachments. Scammers have gotten very good at creating legitimate-looking emails and texts. If you have employees, don’t allow them to download apps on company computers unless you’ve approved them. And if you have a network, consider having a professional monitor it.

All of these things will help you keep your QuickBooks Online data safe. Your customer and product or service records are your company’s lifeblood. If they get stolen, you’ll have a lot of clients whose data has been compromised. If they get hacked and you can no longer access them, your business could be forced to shut down.

Setting up new users in QuickBooks Online isn’t difficult, but you may have some questions about the type of access you should allow. Contact the office for help.

Upcoming Tax Due Dates

July 15

Employers: Deposit Social Security, Medicare and withheld income taxes for June if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for June if the monthly deposit rule applies.

July 31

Employers: File a 2024 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

Employers: Report Social Security and Medicare taxes and income tax withholding for the second quarter of 2025 (Form 941) and pay any tax due if all of the associated taxes due weren’t deposited on time and in full.

August 11

Individuals: Report July tip income of $20 or more to employers (Form 4070).

Employers: Report Social Security and Medicare taxes and income tax withholding for the second quarter 2025 (Form 941), if all associated taxes due were deposited on time and in full.

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