The nanny tax is a tax that many families know about but few actually pay. Part of the problem is the confusing nature of this tax and understanding what your family’s obligation actually is if you have a household employee.  Part one of this post explained what the nanny tax is and how to determine if you are required to pay it  (Hint: if you are paying your nanny more than $1700 per year, you should be filing taxes on her). I sat down with tax and business consultant Bonnie Yormack, principal of  New York-based Lynn-Mark Tax & Business Consultants, to find out more about the nanny tax. Bonnie also happens to be my tax preparer and has given me much good financial advice over the years. Here is part two of my interview with her:

There are so many people who are paying their nannies and part-time baby sitters “under the table” – should I really be concerned with paying these taxes?
Yes. It’s the right thing to do and it’s the law.  Any individual whom 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 (family) and you, the employer, must pay the payroll taxes

How do I file taxes on my nanny? Do I need to hire an accountant or can I do it on my own?
Your  nanny payroll taxes are added to your family’s personal income tax liability. Most families with full time staff will make quarterly payments of the nanny payroll taxes using 1040ES estimated tax payment coupons. The Internal Revenue Service (IRS) collects the nanny payroll taxes. They are summarized annually on the family (employer’s) Form 1040 Schedule H – an attachment to your family’s personal federal income tax return. Separately, as the employer, you are typically required to register for and make quarterly payments of state unemployment taxes. These unemployment taxes are paid to the state where the work is physically performed. You can file these taxes on your own or you can choose to hire an accountant.

Where can I learn more about the nanny tax and what my obligations are?
Go to your state website and IRS website to learn more or speak with your accountant.

What’s the biggest tax mistake you see your clients make year in and year out?
Some household employers forget to make quarterly estimated tax payments. If this happens, they may get substantial underpayment penalties at year end should the total family income tax + nanny payroll tax liability be too large.

If someone would like tax preparation services or financial advice, what’s the best way to get in touch with you? Please visit my website www.lynnmark.com; email me at taxquestions@lynnmark.com or call me at (212) 213-6592.

For those of you looking to figure out how to pay your nanny taxes, Bonnie is a great resource. You can also check out the very informative www.nanny4hire.com, which provides a wealth of detailed information and advisory services. As for me, when I hired D2′s nanny last year, Bonnie helped me get my employer ID number and set up my quarterly tax payments. I track all of my nanny’s paychecks by month on a simple Excel spreadsheet, which I send to Bonnie at the end of every quarter. Bonnie then files my taxes and sends me our 1040 coupon, which states how much tax I owe that quarter. I write a check, mail it off and I’m done.  In the beginning I considered filing my own taxes but I can tell you that it’s far easier to let your accountant or hire a payroll service to do it for you. As a busy mom, I have enough to worry about without trying to figure out the complexities of the US tax code.  What’s your experience with the nanny tax? What other information resources do you recommend?

I’m thisclose to declaring email bankruptcy. I recently returned from a week long business trip to Asia and, no kidding, I had 700 emails in my in-box–and that’s with an out-of-office notification turned on. To cap it off, I had a pile of mail, dozens of meeting requests to sort through and a laundry list of items I needed to do at home.  If you feel whipsawed by a never ending stream of voice mails, endless emails and mile long to-do lists,  you are not alone. I have had far too many days where I feel a total lack of control over my time and schedule. So of late I’ve been searching for methods to help me be more effective at home  and work. I’ve become a huge fan of Harvard Business Review columnist and blogger, Tony Schwartz, who recently wrote a  column that really spoke to me. In it he advises executives to manage their energy rather than their time. Humans are not  designed for a steady stream of high-intensity work, says Schwartz. Based on research he has done with his think-tank  the Energy Project, he has come up with a short but powerful list of tools to help you better manage your energy and make the most of your day:

1. Make sleep your highest priority. This can be easier said than done – especially for moms –  but getting enough sleep (at least eight hours)  is one of the cornerstones of Schwartz’s advice. He advises going to bed at the same time every night and reviewing and writing anything down that’s on your mind before going to sleep. If you are not still convinced, there is a plethora of research now that underscores the importance of a good night’s sleep.
2. Take a renewal break at least every ninety minutes.  A short break in 90 minute intervals can help  to clear and quite your mind.
3. Keep a running list of everything that you want or need to do. I love this one because I am an obsessive list maker.  Putting down your to do’s helps free your mind and gives you a sense of control. For resources, check out my friend and fellow blogger, Kalyn Johnson who recently blogged about a great on-line time management tool. Also check out fantastic mom blogger Blessing at  Working Mom Journal who has a free down-loadable 24hour to do list.
4. Run up your heart rate or take a nap in the early afternoon. This one is probably easier to do if you work for yourself or you work from home. The theory here is that aerobic exercise jump starts your energy. You can go to the gym or take a brisk walk. Alternatively, Schwartz recommends a 20- 30 minute power nap between the hours 1-4 which is when most people start to feel the afternoon energy crash.
5. Practice appreciation – and savoring – Banish negative emotions and focus on the positive. Showing appreciation and projecting postive energy, says Schwartz, will make you feel better.
6. Develop  a transition ritual between work and home. Develop your own way of disengaging from work so that when you walk through that front door, you are truly present for your family.

I’m following Schwartz’s advice and am already seeing and feeling the benefits. How do you manage your energy?