For every parent that posts a panicked “In Search Of: Help with Nanny Taxes!” plea on parenting listservs, there are countless others who are looking the other way. And its not just the parents. Even though the taxes are in the caregiver’s long-term financial interest, the immediate loss of wages to taxes has many sitters requesting to be paid off the books.

One thing that galls some parents is the idea that they are paying taxes for a full-time nanny and are also expected to do the same for an irregular babysitter. It’s helpful to get over the notion that, although its short hand is “nanny tax,” this does not only pertain to a full time Mary Poppins, but, perhaps, to the neighborhood Kristy, Mary Anne, Claudia and Stacey too.

According to the I.R.S. Household Employer’s Tax Guide for 2014, if you pay more than $1,900 annually or $1,000 a quarter to a person working in your home you need to pay employment taxes. This requires a family to withhold Social Security and Medicare (FICA) and to pay a matching portion. State and federal unemployment insurance taxes may also be due.

Many parents feel they are being taxed by going to work and again by coming home to pay the caregiver. Some tax advisors point out that there could be greater compliance if the threshold were higher – something closer to $3,000 or $5,000 a year. If you’re paying for part-time child-care at $18 to $22 an hour, let alone full-time care, you’ll reach the threshold pretty quickly. Even with a more informal sitter, by the time you go out for date-night every Saturday while the same sitter comes by, you’re up to the $1,900 annual limit.

Of course, you don’t have to manage this yourself. A thriving cottage industry has developed providing tax services for families employing caregivers. Companies like Paychex or Homepay offer services specific to paying in home caregivers and can process your payroll and roll out tax forms for you. But unless you have a full-time or heavy part-time caregiver for your children, this will not be a worthwhile household expense.

For those with a sitter, hired-hand, mother’s helper — or any of the other titles we use to try to avoid the more professionalized “nanny” — here are some questions to aid in evaluating your tax responsibility.

Do You Have an Employee or Independent Contractor?
If you control what work is done and how it is completed, you have hired an employee. It doesn’t matter whether the worker is paid hourly, weekly or by the job. The contractor, by contrast, is someone who has their own company and contracts with you for appointments, such as a lawn-care company, house cleaner or a home-health aid. An outside individual who cares for your children in your home is an employee and generates taxable income.

Does Your Caregiver Reach the Wage Threshold?
The requirements to pay Social Security and Medicare kick in after you have paid a caregiver $1,900 for 2014, or $1,000 in any quarter of 2013 and 2014. You are required to report and pay taxes on that person’s 2014 wages.

What Will You Need From Your Caregiver?
Your sitter will need to provide you with a Social Security number or an Individual Taxpayer Identification Number (ITIN), a completed I-9 form, a completed federal W-4 form and state income tax withholding form (if you live in a state with income taxes).

What’s the Benefit of Paying the Taxes?
The real benefit is for your sitter. The point of the taxation is to provide your caregiver with Social Security income and Medicare coverage upon retirement. It will also provide your sitter with unemployment benefits and a verifiable employment history.  But there’s also a benefit to you: possible tax breaks to offset the cost of taxes and a clear conscience.

What’s the Danger of Paying Off the Books?
Let’s say, after working with you for a while without you paying taxes on your caregiver’s wages, you part ways with your sitter. Should the caregiver do something like apply for unemployment benefits, a review may find that your family didn’t file any tax returns or pay into the state unemployment insurance fund. The caregiver is denied benefits and you’re facing questions.

From: Forbes