Am I liable for Nanny taxes?

Question

We have a live in Nanny from South Africa. Originally, she entered the country with a J-1 VISA (cultural exchange) that allowed her to receive a weekly stipend for one year tax free. That was five years ago. Since that time she switched to a F-1 VISA (student) and earns money taking care of our kids and additional money under the table watching the neighbor kids. My questions is if she makes $12K to $15K per year and doesn't file Federal or State income taxes, can the IRS come after me with fines and penalties?

Answer 1

The F1 student must report this as income. However, the income may not be subject to social security and medicare taxes. F1 student must file nonresident tax return.

She will get exemption and deduction as per tax treaty between the U.S. and her country.

Read about nonresident tax filing:

http://taxipay.blogspot.com/2008/03/us-t...

Answer 2

Yes you are liable for the Nanny Tax.

She is your employee.  You pay your share of her Social Security and Medicare taxes when you file your tax return, using Schedule H.  How you pay or remit her share of Social Security and Medicare depends on whether you deducted these taxes from her pay.  The process for paying her share is detailed in the IRS Instruction to Form 1040 Schedule H.

She is required to file a tax return based on this income.  Whether or not she files, you would be liable as described above.  If you didn't pay, you could be subject to fines and penalties, with no time limit for the IRS to come after you.

The penalty for an employer to fail to pay Social Security and Medicare tax is 100%, plus interest.

Answer 3

"Am I liable for Nanny taxes? "

Of course you are.

"from South Africa. Originally, she entered the country with a J-1 VISA (cultural exchange) that allowed her to receive a weekly stipend for one year tax free."

The US/South Africa tax treaty only allowed money that came from OUTSIDE the US for that first year to be tax exempt.  Any money made inside the US was fully taxable.  (Article 20 of the treaty.)

"That was five years ago. Since that time she switched to a F-1 VISA (student)"

Her visa status only governs whether she is a resident or non-resident alien.  An NRA files a 1040NR or 1040NR-EZ and does not get a standard deduction.  This meant any income over and above the amount of the personal exemption each year to be subject to income tax.  I sincerely doubt you are paying her less than $3500 a year.  After 5 years, the visa no longer makes her days exempt and she would then file a 1040.  (However, since she did not abide by the terms of her visa, I doubt she would be considered an NRA.)

"and earns money taking care of our kids and additional money under the table watching the neighbor kids."

So, she also has unreported self-employment income and now owes SE tax as well.  (Since she was violating her visa by working, she can be subject to the SE tax for the first 5 years.)

"My questions is if she makes $12K to $15K per year and doesn't file Federal or State income taxes, can the IRS come after me with fines and penalties?"

Go read IRS publciation 926.  As an employer, you were responsible for checking to see if she was eligible to work (under the visa, she would have to have permission from ICE), had a valid SSN, filled out a W-4 correctly (single 1 and indicating NRA), that you withheld income taxes each payperiod based on her income (after adjusting it for being an NRA), that you paid the fica/mc (even if you did not withhold them--many employers of nannies pay the full 15.3% themselves and adjust the W-2 accordingly) and paid those in with your taxes using schedule H.  You were also required to give her a W-2 each year.

The penalties for failing to do the above can fairly high very quickly.

PS, ignore the post that said students were exempt from fica/mc.  That's only if it's an on-campus job *or* an internship APPROVED by ICE and even then only if she was still considered a non-resident alien.  Your nanny is NONE of these.