By Stephanie Breedlove, Breedlove & Associates
Now that we’re fully immersed in the New Year and (hopefully) back on a normal working schedule, it’s time to turn attention to personal income taxes. A little planning now will help you reduce the stress of the April 15 tax filing deadline. Even better, if you have a refund coming to you, filing early means getting the money in your hand sooner.
If you earned more than $1,800 from a family last year, you should receive a Form W-2 from them by the first week of February. If all your 2013 employers don’t have your current address, it’s important that you alert them now so they can get your W-2 to you on time.
The W-2 is more than just a filing document. It’s important to your future. All your benefits (i.e. Social Security income, Medicare coverage, unemployment income, disability benefits, etc.) are based on the wages reported on Form W-2.
Some of your nanny friends may not get a W-2. Their employer may forget or not be sure how to prepare it. These nannies should feel comfortable standing up for their rights and asking their family for their W-2. If the family won’t do that for her, she has no choice but to go to www.irs.gov and prepare Form 4852, which is the substitute for Form W-2. This should be the last resort – only used if the family refuses to follow the law.
Not getting a Form W-2 is bad, but getting a Form 1099 is even worse. Form 1099 means the family has classified you as an independent contractor (instead of as an employee). What’s the big deal? Independent contractors have a much higher tax rate and they are not entitled to unemployment benefits.
An independent contractor nanny earning $30,000 a year will pay an additional $2,300 in taxes! And, if she gets laid off due to no fault of her own, the state won’t pay her unemployment benefits (up to 50% of her wages for up to 6 months). This seemingly small classification mistake can cost workers thousands of dollars (it’s also illegal for the family and most don’t know it).
Good luck in 2014. We hope you have a safe and happy tax season and get a big refund from the IRS. If there’s anything we can do to help, call us or visit www.breedlove.com.