Archives for October 2016

The Nanny Tax

Like many families, when the kids are out of school for the summer you need someone to watch them while you are at work. This small act to ensure the safety of our children may come back to get us in the end. Just because we send them back to school does not mean we can avoid paying the “Nanny Tax.”

So what is the “Nanny Tax”? According to the IRS, if you pay anyone $2000 or more they are considered an employee. That means if you hire a nanny or caregiver for the summer they become an employee of the family. It makes you responsible for withholding and pay taxes on the wages you pay the caregiver over the summer. If it is over $2000, then Social Security and Medicare taxes. You are also responsible for matching the amount of Social Security and Medicare as the employer. This makes a simple task for parents into something complicated and unwanted.

There is another threshold we have to look at when it comes to having employees, and that is the $1000 threshold. At this point, as an employer, you are required to pay federal and state unemployment taxes.

Now, even though that is all the taxes you pay, it has a different time line than personal income taxes. Employer taxes are due throughout the year. Many time they are paid at the end of each calendar quarter.

There is some good news. If you pay the taxes and follow the rules, the IRS does reward you with tax breaks that may offset the cost. You can take advantage of dependent care accounts, which is set up like a flexible spending account, or the childcare tax credit. Both of which sometimes gives you more back than what you paid. The only thing you need to be able to take advantage of those tax breaks is the nanny/caregivers Social Security number, address, and send them a W-2 form at the end of the year.


Saying No to a Networking Request

In today’s world of networking and social media to promote ourselves and our businesses, it can be tough to decide how to field requests that come in for your time and attention. And if you are successful, you are getting requests all the time. They want a chance to pick you brain, or take you out to coffee. These people want your time, attention, and probably for you to invest in something of theirs. So how do you evaluate these requests and weed through the good and the bad? How important is it to say no?

When a request comes in it can be flattering, or at least it was when you were just beginning your career. Now it can cause several things to happen, including reduce your productivity, take up valuable time you would spend with clients, and keep you from staying on top of your contacts you need to see regularly.

So how does this work. Well, there is many grey areas to accepting networking requests. You have close friends that you will always say yes to, and then there are the ones you do not know at all that are an automatic no, but what about all the ones in the middle? These are the ones that you will have to modify how to evaluate whether you accept the request or not.

Some good ways to do this are to:

  • Ask for more information. This can cut down on aimless conversations. This is also a good way to weed out anyone who has contacted you because they thought it was a good idea, but don’t really have another reason to contact you. The best thing to do is write back to them and ask how you can help them or if they can give you more specifics. This will cut the requests down significantly because most people will not write back.
  • Direct them to Resources. Once you understand what they are wanting by getting more information, you can provide them with more information by directing them to your many resources. Many will begin to ask for a private call or meeting, but you need to make them work for it. Direct them to other resources that are already public and if they are highly motivated they will have more questions and get back to you, otherwise you narrow down the inquirers.
  • Invite them to a group gathering. What if you are interested in meeting with someone, but don’t have time to do a one-on-one? A group gathering is the solution. Invite them to a group gathering where you can connect to multiple people at a time. It will also give them a chance to network with other people interested in the same thing they are, and maybe they will make new connections.
  • Just say no. Sometimes the easiest way to minimize your connection is to just say no, and not even a modified no, just no. There could be many reasons for this, including not enough time, you have minimal connection with the person, or they have proven themselves to be entitled to you time. Make the no firm, but respectful. They may be mad, but don’t let them fault you for your promptness or manners.

Despite our ability to be readily available to people does not mean you have to cater to their needs and wants. Be cautious of people just wanting to take your time away from you. Make sure you make them prove they are worthy of your time and energy. Be gracious and stay focused on your priorties.


Change to Overtime Rules

Beginning December 1, 2016 there is a change in how overtime is paid to “white collar” workers. While this does not apply to anyone who is eligible for overtime now, including hourly workers, this does apply to workers who have not had a chance for overtime in the past. So let’s look at the changes and how they make effect your business.

  1. White-collared workers who earn at least $913 per week ($47,476 annually) will be disqualified from overtime pay, which is time-and-a-half on excess of a 40-hour work week.
  2. Nondiscretionary bonuses can satisfy up to 10% of this new salary requirement as long as they are paid at least quarterly.
  3. Highly compensated employees mu be paid at least $134,004 annually to be disqualified from overtime pay.
  4. Automatic updated to these salary levels will be updated every three years beginning on January 1, 2020.

So what does this all mean. This means that some companies are scrambling to figure out how to comply with the new rules. Many of them have not budgeted for this significant payroll increase and cannot afford the increase. This is much like cost-of-living increases and will be adjusted over time impacting employees’ salaries and companies’ budgets.

What is the plan to combat this change, and how are companies dealing with the increases? The following are some immediate steps companies can take to prepare for the change:

  1. Assess job description. Identify which exempt position are close to the new salary level and which position should be reclassified as non-exempt. Move people as needed.
  2. Assess and Choose. There are several options for employers to fix the situation: 1) raise exempt employees to the new levels to pay no overtime. 2) Leave exempt employees’ salaries below the new levels and pay time-an-a-half for overtime worked. 3) Limit workers’ hours to 40 per week by reorganizing, adjusting schedules, and hiring more people. 4) Use a combination from the suggestions that work for you and your company.
  3. Introduce Time-Keeping. For employees not use to keeping time while they are on the job, you will have to develop, implement, and train them on keeping track of their time. There will be a learning curve, so ensure you give yourself enough time for the adoption.
  4. You need to keep your employees up to date with all the changes. Keeping them in the loop will ensure an easy transition.
  5. Get help. Many of the rules that are changing are also complicated. It is best to seek professional advice to help keep the cost down and make sure you don’t make a costly mistake.

This transition will take time and it is important to get it right. Mistakes can be costly and your business cannot afford to take penalties if something goes wrong. Stat now, start slow and create a plan to ensure the transition is smooth and easy.


Bills to Pay Before You Retire

Ok, so we have talked a lot about retirement. Maybe because it is wishful thinking on my part, but it is also a really important time and transition in life. So we know we need to start saving early if we want to maintain our current lifestyle, or be able to travel (I would love to be able to travel). There are a million things we have to do to get ready to retire, but one of the most important things is to pay off our debts. There are three debts that need to be paid off before we retire, and with 65.4% of households, with a head of house 55 or older, having held debt since 2013, there is a significant number who go into retirement with debts lingering over them.

So what are the debts we need to take care of, and how do you get it done before we retire? Here are three debts to tackle and some advice on how to accomplish the task.

  • Unsecured debt: This includes credit cards or any other lines of credit you make have. This is a tough one because much of our lives revolve around credit, but it is important to not have credit card debt. According to Credit Karma’s calculator, if you have $10,000 on a credit card with 12% interest and are only making $150 payments, then you will pay almost $6,600 in interest. Just think about what they money could have been used for. To help tame this debt, start by evaluating you credit cards. Consolidate the amount from the highest-interest. Many credit card companies offer zero percent interest for 12 months with balance transfers. This is a good way to work your debt down to a manageable amount because the payment goes direct to the principal instead of mainly interest.
  • Student loan debt: We all want what is best for our children, but financing their education is not always what is best for us. We had to finance our own education. Let them finance their own education. If you decide to take on some responsibility to help your child with college, the best advice is to keep saving for retirement, and repay the loans as soon as they come due. Like any repayment, repay more than to minimum. Once your child graduates and get a job, have them contribute to the payback. To minimize the amount you start with, encourage them to maintain good grade, and get a good score on the ACT/SAT to be eligible for scholarships. They should also only take the classes they need to graduate, and if they cannot maintain grade then they should have to pay for the classes they fail. Do not shoulder this burden if you cannot afford it.
  • Mortgage debt: Nearly 33% of Americans’ total expenditure in 2015 went to housing. While mortgage debt is considered “good” debt, it is still debt. Most of the time when you retire, your kids are already out of the home, and your house is the last tax shelter you have. You may want to take advantage of lower interest rate and refinance, which will save on interest and get you a higher return in your investment.

If you are close to retirement and having trouble getting out from under your debt, then you may just have to work longer. While this may not be the option you wanted, it may work out for you in the long run. People who delay their retirement until the age 65 or later, can get significantly more money from Social Security then those that opt to retire at 62. And if you delay retirement until closer to 70, the amount just keeps going up.