Nannies: Independent Contractor or Employee?
I see about three or four of these every year – a nanny comes into the office with a Form 1099 showing nonemployee compensation from the individual(s) to whom she provides child care services. When I ask a few basic questions, it becomes clear that I’m dealing with what should be an employer-employee relationship. In just about every case, the family decides when the nanny works, and where she works, and the nanny is not providing her services to the general public. Under those circumstances, the nanny is an employee of the family and the employer should be withholding federal, state, Social Security, and Medicare taxes and issuing the nanny a W-2 (not to mention paying federal unemployment taxes plus other things that the state may require).
If you are in this situation, where you believe that you were wrongly treated as an independent contractor, you have the option of filing Form SS-8, which asks the IRS to determine your status for the purposes of federal employment taxes and income tax withholding. The IRS will send you a letter acknowledging that they have received your SS-8 and will typically send a blank SS-8 to your employer in response – so realize that you won’t be able to do this without your employer finding out, with all the attendant risk that entails.
Once you’ve filed Form SS-8, you also can file Form 8919 with your return, which allows you to report your share of the uncollected Medicare and social security tax that should have been collected by your employer. Until you’ve actually received a determination from the IRS that you are an employee, you will probably use reason code G (no reply received to SS-8) as your reason for filing on the 8919. When you use the 8919, you get credit for your contribution to SS and Medicare (which you also report on line 57 of your 1040) but avoid paying the employer’s share that you pay by filing Schedule C and SE. You also include the income from your employment on line 7 of your 1040 as wage income rather than filing a Schedule C. Realize when you opt for Form 8919 that if the IRS, after reviewing your SS-8 and your employer’s response, determines that you are really an independent contractor, you may be billed for the taxes that you should have paid as an independent contactor plus penalities and interest.
Going the SS-8/8919 route is risky business, and you should consult with both an experienced labor professional and an experienced tax professional first.