A friend just did this to handle the payroll for their nanny and it wasn't something I had previously considered. Is this recommended or common?

Everyone I know pays cash and handles taxes when they file their return.

Why did your friend set up the LLC?

Not a lawyer, but this particular arrangement would not lend itself well to protections provided by LLC for business interests.

Since your company is is the employer but you are then also the only customer, I could see LLC protections being pierced.

And thresholds for nanny, housekeepers, etc requiring payroll reporting are exceptionally low. Things like pool and lawn care are generally excluded.

Check the rules when in doubt. And hire a lawyer, accountant if you want piece of mind.

Exactly what I was looking for. Thanks.

As for why, his FIL recommended it. No idea why.

fka ftc said:

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Not a lawyer, but this particular arrangement would not lend itself well to protections provided by LLC for business interests.

Since your company is is the employer but you are then also the only customer, I could see LLC protections being pierced.

And thresholds for nanny, housekeepers, etc requiring payroll reporting are exceptionally low. Things like pool and law. Care are generally excluded.

Check the rules when in doubt. And hire a lawyer, accountant if you want piece of mind.

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You think they did it for liability protection?

Carol Baskin said:

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Exactly what I was looking for. Thanks.

As for why, his FIL recommended it. No idea why.

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Got you. Well, I have never seen anyone form an LLC for this type of thing. I have seen them formed for a variety of reasons, needed or unneeded. Had one couple set up three in one year! Then did so many things that I doubt they have the liability protection they thought they had. For a few years, everyone seemed to have to have one, lol.

I have seen this before. I don't know the rules on what the business has to be to run this through as an expense on payroll but it is worth looking into. I would talk to a 1) lawyer 2) tax accountant.

I don't know if you can just set up an LLC and run the expenses through there. It probably has to be a legit business. But I have seen it before.

Doesn't an LLC have to be set up with an intent to make a profit? Or is the Nanny the LLC owner?

gig em 02 said:

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fka ftc said:

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Not a lawyer, but this particular arrangement would not lend itself well to protections provided by LLC for business interests.

Since your company is is the employer but you are then also the only customer, I could see LLC protections being pierced.

And thresholds for nanny, housekeepers, etc requiring payroll reporting are exceptionally low. Things like pool and law. Care are generally excluded.

Check the rules when in doubt. And hire a lawyer, accountant if you want piece of mind.

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You think they did it for liability protection?

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Why else setup an LLC in this instance? Only reason I can think of is to try and put the nanny in a liability bubble to keep her or her actions from attaching to you in a suit. But many, particularly in this instance, will not have the discipline to keep things like bank accounts, payments, etc separate enough to keep that liability protection in place.

No business or entity has to be setup with an intent to make a profit. However, in order to deduct business expenses there has to be a legitimate intent at profitability.

Carol Baskin said:

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Exactly what I was looking for. Thanks.

As for why, his FIL recommended it. No idea why.

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I'm not an accountant but it Sounds like it might be dated advice. As far as I know sometime in the Obama administration you lost the ability to deduct Nanny payroll taxes for single household employee if not in the Nanny services business (providing for multiple people)

Long story short - I had to pay income taxes on the income that I made to pay the Nanny's employer portion of Medicare & ssi whereas a business got to deduct.

Always thought it was super unfair to pay taxes on the money I used to pay taxes

fka ftc said:

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gig em 02 said:

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fka ftc said:

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Not a lawyer, but this particular arrangement would not lend itself well to protections provided by LLC for business interests.

Since your company is is the employer but you are then also the only customer, I could see LLC protections being pierced.

And thresholds for nanny, housekeepers, etc requiring payroll reporting are exceptionally low. Things like pool and law. Care are generally excluded.

Check the rules when in doubt. And hire a lawyer, accountant if you want piece of mind.

---

You think they did it for liability protection?

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Why else setup an LLC in this instance? Only reason I can think of is to try and put the nanny in a liability bubble to keep her or her actions from attaching to you in a suit. But many, particularly in this instance, will not have the discipline to keep things like bank accounts, payments, etc separate enough to keep that liability protection in place.

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I picked up some extra umbrella insurance just in case. Found out it was not very expensive.

Blue star to bump that comment to the top. I work in insurance and I don't understand why everyone doesn't buy umbrella coverage. It's stupid cheap and he cost to bump up the underlying limits is usually nominal.

Bump up more if you have a pool, if that pool has a diving board, once your kid becomes a teenager, as you build assets, etc.

What is the legal/tax distinction between paying a daycare vs. paying a nanny for the same service? Is the argument that a nanny can't be considered a contractor given you're telling them when to work, and thus, they must be an employee?

Pretty sure a nanny is always considered an employee and if you're doing it above the table you have to account for Medicare/SS taxes and other stuff like that.