Help! I was given a 1099!
Did your nanny family issue you a 1099 instead of a W-2? As you probably already know, this is ILLEGAL. Nannies are entitled to a W-2, as they are not independent contractors. So, what should you do if your employer has misclassified you as and independent contractor and issued you a 1099? The first thing to do is not panic. While this is going to take some legwork to get sorted out, it WILL get sorted out if you follow these instructions. Before delving into the steps you should take to fix this error, let me give a brief overview of why exactly receiving a 1099 is SUCH a big deal. Basically, a 1099 means you are an independent contractor, and therefore responsible for all employment taxes (employer and employee taxes). This means, you are paying double taxes, while your nanny family pays NO taxes -- because you are paying the employer portion of taxes for them. With a W-2, the taxes are cut in half because the parents are responsible to pay their portion of the employer taxes and the nanny is responsible to pay their portion of employee taxes. In a 1099, ALL the taxes fall on the nanny, which is illegal and simply unfair. When parents hire a nanny they are hiring an employee in their home -- the parents control when the nanny works, how the work is done, etc. If a nanny were an independent contractor, the nanny would be able to set their own schedule, raise the kids however they see fit (the nanny would not have to adhere to the parents' child rearing style), determine how much TV the kids could watch, decide which discipline style to use without consulting with the parents, etc. For these reasons, obviously a nanny is NOT an independent contractor, but rather an employee.
So, what should you do if you find yourself with a 1099 instead of a W-2?
1. Before jumping to conclusions, give your nanny family the benefit of the doubt. Maybe they made an honest mistake and simply have no idea that they misclassified you. In fact, it's very possible that this is the case because sadly, most CPAs do not know the laws as they specifically apply to nannies. The first step of remedying this issue is to confront your employers about it. You can request a sit down or send them an email -- whichever is your preferred communication style. Whether in person or via email, you need to be prepared with resources and articles to back up what you are about to tell them. This is most likely going to be a big shock to your employers and they probably aren't going to be too happy about it...because unexpectedly they are now having to spend a lot of money they never anticipated spending. But don't worry. If they are unhappy, you do not need to feel guilty -- it was their responsibility as employers to make sure they were employing you legally and correctly, so as harsh as it is, they only have themselves to blame. Explain to your employers that you recently learned it's illegal for nannies to receive a 1099 and that nannies are legally entitled to a W-2. Then send them these articles and the direct link to IRS Publication 926....
2. Now that you've talked with them and they've read the articles, hopefully they have agreed to fix the error, issue you a W-2, and pay you back from years past if you were issued a 1099. Unfortunately for many nannies, it's not this simple and parents still fight back and refuse to issue a W-2 or reimburse the nanny for taxes the nanny paid on the parents' behalf. Some parents may say their CPA is an expert and said a 1099 is okay or others may simply say that it's not fair because they didn't plan to spend all this money in taxes and can't afford it, so they try to guilt you into just accepting the 1099. If your employers are doing this, do not lose hope! And definitely do not feel guilty. Why should you have to pay their portion of taxes because they can't afford it? How can you afford it, but they can't? It's not fair, so do NOT settle and give in. You have the law on your side and it may take a while, but it will get sorted out.
3. If after confronting them, your employers still absolutely refuse to issue you a W-2, simply say to them, "No problem. I will just fill out the SS-8 form so the IRS can determine my worker status and sort it out." THIS should scare them into doing the right thing. This is no joke -- once you fill out this form, the IRS will investigate and determine that you are in fact a household employee, entitled to a W-2. Your employers will most likely be audited and forced to pay fines for misclassifying you, and in some cases, your employers will even have to cover your taxes in addition to their own! Telling them about the SS-8 form is you giving them one last chance to just square up with you directly and do the right thing, before having to get the IRS involved. You have tried to settle it simply and peacefully, but if they still refuse to comply, go ahead and fill out the SS-8 form. You will still have to file for this year and pay all the taxes from your 1099, but you will be reimbursed once the IRS sorts it out. And if you also have previous years with a 1099, make sure the IRS looks into that as well because you will receive backpay for all the years you had to pay your employer's taxes for them. If you're feeling intimidated and defeated, just read this story about a nanny who fought back (and won) when she was issued a 1099 :) It's not as scary as it seems and you can do it!!