Make an alternate form to register for nanny taxes and increase state tax revenue

Ah, the nanny tax. Some quick Google searches show a range of 80 to 95% of people who are obligated to pay the nanny tax, simply don’t. (NYTimes, That’s a pretty whopping statistic.

As I’ve been finding out, it would certainly be easier to just skip it. This past summer I hired a nanny for about six weeks. And, wanting to do the right thing, I decided I would deal with the paperwork and expense, and just pay her as a household employee and deal with the taxes. And that’s still the right thing to do.

But, wow, do I hate paperwork, and this stuff is over the top.

Thumbnail panels of form 518
Form 518 from the State of Michigan was a bit over the top. I just wanted to pay taxes for hiring a nanny for a few weeks.

For the State of Michigan, I found out I have to fill out form 518, Registration for Michigan Business Taxes. The title of the form alone caused some trepidation. As I proceeded to fill it out, I found myself frequently scratching my head, thinking things like, “Why are they asking me about acquiring a business in the past four years? I just wanted to pay taxes for hiring a nanny.” Or, “But I’m not a business. I’m not buying or selling anything. This is a money losing scenario for me. I just want to pay what I have to for hiring a nanny!”

So, there was form 518, plus two additional forms I had to fill out, just to jump through some hoops to register for Unemployment Insurance taxes.

It’s pretty obvious that those forms are meant for real businesses, not private individuals who want to pay a household employee. I was so close to hiring a lawyer or accountant, but that just seemed unreasonable to me, so out of proportion with the fact that I just wanted to pay a nanny.

Upon having gone through the paperwork, nearly all of it was completely irrelevant. The relevant pieces were mostly my name and address or oddly specific. For instance, I nearly didn’t find the SIC number that applies to my situation. On the second page of SIC codes, about two thirds of the way down the fourth column of codes I found 881: Private Households – Domestic Employees, Cleaning, Baby-sitting, Private Nursing. I’m glad I found it, because I was really close to just leaving that field on the form blank.

Perhaps to the government, paying a nanny is just like owning a business. But, to me that seems like a dandy of a one-size-fits-all blunder. If instead the only form that a private individual had to fill out in order to register for nanny taxes was a quarter-sheet size form with contact information, perhaps more people would actually fill it out.

Maybe it could be a special edition of the 518, called 518-PH, for Private Households. The rest of the pertinent 518 information could be presumed on that form, simply because people filling it out fit that profile. (For instance, it would imply SIC # 881.)

How many people looked at the paperwork, freaked out for a moment, and then just decided to skip it? The current form is quite simply a roadblock to tax revenue and to people who would like to do the right thing.

3 responses to “Make an alternate form to register for nanny taxes and increase state tax revenue”

  1. You are correct, the Michigan 518 is used to register for all business taxes in Michigan. You claim that you’re not using your nanny in a business, but charity groups aren’t either, and they must register to withhold.

    The bottom line is, in your case, it’s just used to register for Income Tax withholding. Many of the questions are aimed at providing assistance to collect delinquent taxes should that ever be necessary.

    But if you filled in only the minimum information, I’m sure the state would still be happy to take the money.

  2. This was the first thing on the internet, after several rewording of Google searches, that I found to be helpful on the Michigan process for paying the “nanny tax.” I just got done shouting at my computer multiple times, “But I’m not a business!” or “I don’t HAVE a business category!”

    Not only did you help me with the category part, but you also made me feel better by validating my feelings that it’s like they WANT people to pay their household employers under the table. If you want people to do the right thing, don’t make it impossible to do the right thing!

    I know it’s a few years old, but thank you for your post.

  3. This process is not straight forward and I am still dealing with the consequences of not getting registered sooner with MiWAM. For some reason, I was under the impression I could file during the following spring like you can with Federal taxes. Just uninformed since both my wife and I work and have never owned or investigated owning business. I don’t think having a Nanny constitutes owning a business, but the State of Michigan sure thinks so. Now unfortunately, we are dealing with penalties for being delinquent in paying state unemployment taxes, which I might add are 4x more than what we actually owed for unemployment taxes.

    I have spoken to multiple people about this as well and they all state the obvious, why is it so difficult to do the right thing. Hence, why people pay their nanny under the table. If I had all kinds of liquidity, hiring an accountant or lawyer would be feasible, but we just do not have that type of available funds.

    I wrote a letter to MiWAM as well explaining the situation. I haven’t heard back, but they did confirm they received it.

    This entire process has been a nightmare and consumed hours and hours of time that I would prefer spending with my family, since I work full-time.

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