Wait, I thought the nanny tax was just for household employees like babysitters and housekeepers? Would that apply to someone helping with my actual business? It's a small woodworking operation if that makes a difference.

You're right - I should have been more clear. The nanny tax specifically applies to household employees, not business employees. For a woodworking business, your helper would be considered a regular employee. In your case, you'll need to follow standard employment tax procedures, including getting an EIN, filing quarterly 941 forms for federal tax withholding, and annual W-2/W-3 forms. Most states also require quarterly unemployment tax filings. Since you mentioned woodworking, make sure you have proper workers' compensation insurance too - it's especially important in trades with injury risks.

I use Square Payroll for my small business with 2 part-time employees. It's about $35/month plus $5 per employee. Totally worth it IMO. They handle all the tax calculations, filings, and W-2s automatically. You just enter hours and pay rate, and it does everything else. Much better than trying to figure out all the withholding calculations yourself.

Thank you for bringing up the state tax issue! I hadn't even considered that. Do you know if I should contact the state tax department now or wait until I resolve things with the IRS first?

In your situation, focus on resolving the federal CP2000 issue first. Most states won't take action until after the IRS assessment is finalized, which gives you some time. Once you've submitted your response to the IRS and have a resolution, then you can be proactive with your state tax department if needed. Just keep copies of all documentation and correspondence with the IRS, as you'll likely need the same information for the state. This approach lets you handle one tax authority at a time rather than juggling both simultaneously.

Is it better to call early morning or late afternoon to get through? I've heard conflicting advice about this.

Can you explain more about what this means? My unfiled return is just from last year, so does that affect anything?

Since your unfiled return is only from last year, you're well within the 3-year assessment period. This means the IRS has 3 years from the date you file to audit your return and assess additional taxes if they find issues. The 10-year collection statute doesn't start until taxes are assessed, which happens after you file. Once assessed, the IRS has 10 years to collect. For most people with straightforward tax situations and relatively small balances like yours, audits are unlikely. The important thing is just getting current with your filings, which you're planning to do.

You're right, I haven't updated my W-4 since getting promoted. I assumed the payroll system would automatically adjust everything. How do I figure out the right amount to add for additional withholding? Is there a calculation or formula I should use?

Take the amount you owed this year ($1,300) and divide it by the number of pay periods remaining in the year. For example, if you're paid twice a month and it's currently April, you have about 16 pay periods left, so you'd add about $81 of additional withholding per paycheck ($1,300 ÷ 16). You might want to add a bit more if you expect your income to continue rising. The IRS has a tax withholding estimator on their website that can help you calculate this more precisely based on your specific situation. Remember that this adjustment only affects future withholding, not what you currently owe.

This is exactly right. I'm an accountant and see this all the time with sales people. The 22% supplemental wage withholding is just a simplified method employers use, but your actual tax liability is based on your total income for the year across all sources.

Is there any resource that lists which states have these additional local requirements? I'm trying to be proactive but there's so much conflicting info out there.

There's no perfect single resource that I've found, but the Sales Tax Institute has a good overview of "home rule" states where local jurisdictions can administer their own sales taxes. Colorado, Alabama, Louisiana, and Alaska are the major ones to watch for. Arizona and Idaho also have some local peculiarities. The worst offender is definitely Louisiana with over 60 different local tax authorities. When you register with the state, they'll usually provide information about local requirements, but it's easy to miss if you're not paying attention to all the documentation they send.

I've used both. Avalara is more comprehensive but also more expensive and complicated to set up. TaxJar is more user-friendly for smaller businesses but might not have some of the advanced features. For just tracking economic nexus thresholds, both do a decent job, but I found TaxJar's alerts about approaching thresholds to be more helpful.

Thanks for the insight! I think TaxJar might be better for me then since I'm not that big yet. Did you find it integrated well with your existing systems? I'm using Shopify and QuickBooks.