Zoe Baird. Kimba Wood. Sound familiar? Both of these  prominent women were nominated for high-level political appointments only to see their nominations torpedoed due to not paying taxes on their household help. It’s a common story these days; many families either don’t know about the so-called ‘nanny tax’ or simply choose not to pay it. After all, no one really pays these taxes right? Well, you may want to reconsider. Last winter while out on maternity leave, I hired D2′s amazing nanny, Eve. I quickly received an education from Bonnie Yormack, my wonderful accountant of 10+ years, about my tax obligations for D2′s childcare. Not only is Bonnie principal and owner of  New York-based Lynn-Mark Tax & Business Consultants, she’s a working mom to boot and understands the financial challenges of raising a family.  My biggest question for Bonnie at the outset was, “Do I really have to pay this?” The answer was yes. Not only is it the right thing to do. It’s the legal thing to do. I admit I was more than a little overwhelmed and intimidated by the process but Bonnie quickly got me on the right track. With tax season right around the corner, I thought it good timing to sit down with her to clear up the confusion about the nanny tax – what it is, what your obligations are as a tax payer and how to pay it.  This is the first of two posts that I hope will shed some light and help you make your own decision come tax time. (Small disclaimer: this is general information and it goes without saying you should always consult your accountant about your situation.)

What exactly is the “nanny tax” and who is obligated to pay it?
In general, the Internal Revenue Service requires payroll tax filings by a household employer (sometimes called domestic employer by the IRS) who pays a household employee more than $1700 (2011) cash wages in a calendar year. These nanny payroll taxes are collectively referred to as “nanny taxes”.

As an employer, your nanny payroll tax obligations may include:

• Social Security & Medicare Taxes (7.65% of Gross Wages) [FICA taxes]
• Federal Unemployment Tax (FUTA) (0.8% of Gross Wages or less in Most Circumstances)
• State unemployment and disability insurance taxes levied on the employer.
• Possible workers comp and disability may be required by your home state.

If my family employs a  part-time babysitter to watch my children every day after school, should I be concerned about paying employee taxes? What if I am utilizing other domestic services like housekeeping or elder care? Am I required to pay taxes on these individuals as well?

Yes. Any individual you employ to provide services in your home whom you pay directly AND whose total payments in the calendar year meets the IRS household employment threshold ($1700 in 2011) must receive a W-2 from the employer (your family) and you the employer must pay the payroll taxes. So this includes:

• Social Security & Medicare Taxes (15.3% of Gross Wages – employer may collect 7.65% from the employee via deductions. For 2011 ONLY, the household employee’s contribution to Social Security & Medicare Taxes is reduced to 5.65%. Employer contribution remains the same.)
• State Unemployment Taxes where required.
• Federal Unemployment Tax (FUTA) where required.

It’s also important to note that as the employer, you are responsible for paying Social Security and Medicare taxes. If you don’t collect this tax from your employee through periodic payroll deductions, you are still responsible for  paying the tax to the IRS. Your employee (in this case your nanny)  CANNOT pay her share of Social Security and Medicare tax for you. You must do this.

If my nanny is not a legal US resident, should I still pay taxes on her?

Yes. According to the The Internal Revenue Code, the immigration status of your nanny or other employee has no bearing on your obligation for employment taxes. The IRS requires that workers ineligible for Social Security Numbers file Form W-7 to request an Individual Taxpayer Identification Number (ITIN). This number will be used on all tax reports and returns, including Form W-2.

If my nanny offers to file her own taxes is this okay?

As the household employer, you are obligated to remit your nanny’s taxes to the IRS. However, if she offers to pay her fair share of the Social Security and Medicare, and possibly Federal and state taxes, what you can do is deduct her share of employee taxes from her net pay.

Next post I’ll discuss how to pay the nanny tax and where you can get more information to help you determine what’s right for your family.

We’d all like to think that we are immune from failure, but even the most successful executive hits a wall sometimes. The reality is that you will experience set backs at some point in your career. Being alert to these common career derailers can help keep you on the right track:

You have lousy interpersonal skills. You’ve been pulled aside for yelling at people or otherwise showing your temper. Or maybe you’ve received feedback that people don’t trust you, don’t see you as a team player or feel uncomfortable delivering bad news to you. You may need to brush up on your interpersonal skills. People want to work with people who are empathetic, personable and motivating. You don’t need to be best friends with everyone at work, but you do need to be approachable and perceived as caring about others.

You don’t collaborate well. No one likes a Lone Ranger and it’s rare that anything gets done in an organization due to a single individual. Being able to work well in a team is vital to your career success. This means being willing to delegate tasks (and not just the scut work you don’t like doing) and share credit with others. It means rolling up your sleeves and grinding out the long hours with your team every now and then to meet an important deadline. Get a reputation of not being a team player and you will find that you are getting shut out of juicy assignments that can get you promoted.

Your goals are misaligned with your boss’s. This seems like an obvious one but it’s imperative that you make sure that you are working on the things your boss thinks are important. Don’t wait until your quarterly performance review to find out that you have the wrong priorities. Make it a point to check in with your boss at least twice a month on the things you are working on and confirm that they are still important.

You don’t understand how decisions really get made in your organization. Every organization has both formal and informal (what I call the “shadow organization”) decision making structures. Even if you are very senior in your organization, you still need to understand who the influencers are. Small factions can kill new initiatives before they are even up and running. Understanding who the power brokers are in your organization can help you understand who you need to influence when trying to create organizational change or launch a new initiative.

You let your network dry up. This is a common problem for women. We can be so focused on doing the job that we forget about relationship building. My late Grandpa Morrow, who owned his own construction company and was the ultimate business man, once told me, “You don’t want to meet your neighbors for the first time when your house is burning down.” Truer words have never been spoken. The time to build relationships is when you don’t need something. Make it a habit once or twice a week to have lunch with a colleague and call or email associates you haven’t spoken to in awhile.

You  avoid confronting problem employees. If you are someone who’d rather chew ground glass than deal with a problem employee, you are in for trouble. A poor performing employee reflects poorly on you. What’s more, the longer you let the problem fester, the more you are sending a signal to the rest of your team that you are a weak manager. Do yourself a favor. Next time you have an employee who is not performing as expected “woman up” and deal with the problem directly. This might include putting the employee on a performance plan or asking HR to intervene – whatever your company policy might be. Doing nothing will not only not make the problem go away, you risk your credibility by not confronting the issue directly.

You are too narrowly focused on your on own job and don’t see the big picture. These days, successful executives are expected to know more than just their job function. They are expected to be able to bring sharp, strategic thinking that will benefit their enterprise. Whether you are in marketing, finance, operations or HR, the more you understand and can contribute to your business’ strategy and competitiveness, the more valuable you will make yourself. Ask yourself every day, “How can I help my boss make better decisions about our business?”  and “How can I help create more value for our business?”

You fail to ask for candid feedback from your subordinates and peers. We’d all like to think we are the most approachable managers in the world and that our direct reports feel comfortable enough to give us constructive criticism. The truth is that most of the time, unless you ask for it specifically, your direct reports may not feel comfortable giving you feedback. This goes for peers as well. What can you do? Ask for feedback and be specific. Maybe you are trying to work on not talking so much in meetings to give others a chance to express their opinions. Pick one or two people and share your goal and ask them to give you feedback on how you are doing.

Managing your career is an on-going process. With vigilance and forethought you can avoid these common career blunders. What would you add to this list? I’d love to hear your thoughts and advice on managing your career.