If you pay a household employee such as a nanny or a home health care aide $1,300 or more in 2003, you’re responsible for paying Social Security and Medicare taxes as well as unemployment tax. State taxes also may apply. If you don’t pay, a former employee might apply for unemployment or Social Security benefits some day.
Even if this application occurs decades in the future, the IRS can come after you for back taxes, interest, and penalties. There’s no three-year statute of limitations on the so-called nanny tax, as there is with other tax return items. Over the years, compound interest can pile up.
Therefore, it’s best to keep current with these obligations. Paperwork can be a hassle but some accounting firms will help you with the process. Fortunately, the nanny tax doesn’t apply to wages paid to students under age 18 so you can hire a young babysitter without worrying about such matters.
