Nanny - tax questions???

First off, I understand that for specific info I'll likely need to engage a professional accountant but I was hoping someone here could chime in with some general info.

My wife has been off work since 2016 but wants to start working again part time. She loves kids and has been looking at working as a nanny for a local family.

They will be claiming her pay on their taxes, and I presume that means she would be considered "self employed" and have to pay self-employment tax? Just wondering if any of you (or your spouses or children) are in a similar situation and how you deal with the tax issue.

Thanks in advance! [Beer]

If income is over $600 annually, it has to be claimed. If they issue a 1099, it would be hard to ignore the implications. You can certainly go to one of the online tax calculators and figure out how much the cost will be in taxes. If she sets up an LLC and takes a distribution as opposed to "wages" you can avoid the payroll taxes and keep it to income taxes. Then she can also deduct mileage and all the other associated expenses.

I have a friend who is a Nanny. The family she works for gives her a prepaid gas card each week. They also give her a prepaid CC each week with their grocery list and let her use whatever the remainder is for her food while working, and she gets to take the "leftovers" home. They deduct those as childcare expenses. Not an endorsement, just how someone else decided to do it.

I'd read the 1099 form instructions first. and make sure that is the form they will file: https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

She can take the mileage deduction regardless of establishing an LLC, but Mark has valid points.

If your wife makes over $2000 from a family for in-home child care in the course of the year, she is not an independent contractor or self employed. She is considered to be a 'household employee' for Nanny Tax purposes, and it is the responsibility of the family to handle withholding for taxes. If they do not provide her with a W2, she can self-report on a form 4852. Setting up a pass-through LLC may be an option, but she should probably get specific legal advice if she wishes to pursue that route. If she's just wanting to get her feet wet in in-home child care, and if the parents are already talking about fulfilling the Nanny Tax obligation, she's probably good to go. I'd just keep track of hours and wages to verify.

Care.com is a double-edged sword for care providers, but a pretty good place to get started. Marketing has made it where all the parents are. We used their payroll and nanny-tax service, Home Pay, to pay our niece for babysitting our kid for a year after she graduated high-school. In addition to us being able to claim the child-care credit, it let her establish a legitimate income stream for purposes of establishing her emancipation for state residency. I want to say it was $40/month for their payroll service.