Here’s the real problem for your friend. Even if the $19,000 was the only income she earned during the year, she would be responsible for about $600 of income taxes and $1400 of Social Security and Medicare taxes, which would have been automatically withheld from her paycheck if she was working for a traditional employer. She is still responsible for paying these taxes, even though she didn’t have withholding. If the $19,000 nanny income was in addition to other income, or if she is married and her spouse has income, then she could owe as much as $6000 income tax on the money, plus the Social Security and Medicare tax. Whether or not they were withheld during the year. And if she knew she wasn’t having taxes withheld, she should have been setting something aside for the taxes.
By using the procedure for household employee wages, TurboTax will assess her 7.65% Social Security tax plus whatever income taxes owed, but she would not pay the 15% self-employment tax which is what would happen if she reported her income as a small business or self employment.
