19 Don't forget about state-level requirements too! Depending on where you live, you might also need to withhold for state unemployment insurance. In my state, I had to register as a household employer with both the IRS (for federal taxes) AND with the state workforce agency. The whole nanny tax thing is honestly a paperwork nightmare. I eventually broke down and hired a nanny payroll service that handles all the withholding, tax payments, and filings for about $50/month. Totally worth it to avoid the headache and potential mistakes.

As someone who's been through this exact situation, I can confirm that FICA withholding is absolutely mandatory - there's no legal way around it. When I hired my nanny last year, she also asked me not to withhold anything, but after researching it thoroughly, I realized we had to follow the law. What helped me was explaining to her that the 7.65% she pays actually benefits her in the long run - it goes toward her Social Security credits and Medicare eligibility. Many nannies don't realize that working "under the table" means they're missing out on building their Social Security work history. I'd recommend being upfront with your nanny that this isn't negotiable, but you can work with her on the overall compensation to make sure she's happy with her take-home pay. The penalties for not complying just aren't worth the risk, especially since the IRS has been cracking down on household employer compliance.

Sorry if this is a dumb question, but will my Medicare tax rate increase as I earn more? My friend mentioned something about an "additional Medicare tax" for higher income people?

Just wanted to share my experience as someone who was in your exact same situation a few years ago! When I first saw Medicare tax being deducted from my paycheck while also paying for my employer's health insurance, I thought there was some kind of mistake. What really helped me understand it was thinking of Medicare tax like car insurance vs. life insurance - they're both insurance, but they cover completely different things at different times. Your BCBS covers you right now for doctor visits, prescriptions, etc. Medicare tax is like putting money into a piggy bank that you can't touch until you're 65 (or qualify due to disability). The key thing that clicked for me was realizing that Medicare isn't just health insurance - it's a government program that provides healthcare for elderly and disabled Americans. So when you pay that 1.45%, you're contributing to a system that takes care of millions of people who can no longer work or afford private insurance. It's definitely frustrating to see money leave your paycheck for something you can't use right now, but think of it as investing in your future self. When you're 65, you'll be really glad this system exists!

Question for anyone who's done this - does grouping require amending previous returns? I'm in a similar situation with a property LLC and operating business, and filed separately for the last two years.

This is exactly the kind of situation where activity grouping can be a game-changer! Since you have common ownership of both LLCs and clear operational interdependence (PropCo exists primarily to serve OpCo), you should have a strong case for grouping. The key thing to remember is that once you group these activities and you materially participate in the restaurant business, the entire grouped activity becomes non-passive. This means those $78,000 in historic rehabilitation credits would no longer be trapped as passive credits - you could use them against your restaurant income or even your wife's non-passive income. Make sure to document the business reasons for grouping (shared management, operational interdependence, common ownership) in your election statement. Given the substantial credits at stake, it might also be worth getting a second opinion from a tax professional who specializes in passive activity rules before making the election, just to ensure you're maximizing the benefit and meeting all requirements.

Guys I think everyones overthinking this. The $600 threshold is for BUSINESS payments. Unless your gf is running a business and you're paying her as a client, you're fine. Just mark everything as personal payments in cashapp. And keep basic records showing these are shared expenses just in case.

Based on my experience dealing with this exact situation, you should be fine as long as you're marking these as personal payments in CashApp. The $600 threshold is specifically for business transactions, not personal reimbursements between household members. I'd recommend keeping simple documentation though - maybe a shared spreadsheet showing what each payment was for (rent, utilities, groceries, etc.) and the amounts. This way if any questions ever come up, you have clear proof these are legitimate expense splits, not income. The direct bank transfer idea isn't necessary unless you prefer it for other reasons. Alternating who pays which bills could work too, but honestly seems like more hassle than just continuing what you're doing and marking payments correctly. The most important thing is that transaction categorization when you send the money.

Have you considered just partitioning your space? I had a similar issue and my accountant recommended physically dividing the room. I put up a small divider wall and now I have my "business only" area that meets the exclusive use test (about 60% of the room) and my personal area with a separate computer for non-business stuff. IRS Publication 587 doesn't actually require the space to be a separate room - just an "identifiable space." My accountant said this approach is compliant as long as you're very clear about which section is exclusively for business and can demonstrate that with photos and measurements.

I appreciate everyone's insights here! As someone who's dealt with this exact situation, I want to emphasize what several others have mentioned - the IRS really is strict about the "exclusive use" requirement. From what you've described, using your computer for personal activities like gaming, checking personal emails, and paying household bills would unfortunately disqualify the space from meeting the exclusive use test, even though the room itself is set up as a dedicated office. However, you still have some good options: 1. **Equipment deductions**: You can absolutely deduct the business percentage of your computer, internet, and other equipment costs. If you use your computer 80% for business, deduct 80% of those expenses. 2. **Physical partition**: As Benjamin mentioned, you could divide the room so part of it is exclusively for business. This requires clear physical separation and careful documentation. 3. **Separate personal activities**: Move all personal computer use to a different location in your home, keeping the office space truly exclusive. The audit stories shared here are sobering - the IRS does ask direct questions about how you use the space, and honesty is crucial. Don't let the strict rules discourage you from legitimate business deductions though. You just need to structure things correctly to stay compliant.