Guide to Nanny Taxes
Now that you’ve invested so much to find just the right nanny to care for your children, the last thing you want to worry about is payroll taxes! Calculating, filing and paying your nanny’s payroll can be intimidating and confusing. So much so that many parents think it’s just easier to skip the taxes all together and pay their nanny “under the table.” Don’t do it. Not only is it illegal, it can be costly. On average, failing to pay the Nanny Tax can cost up to $25,000 in fines and penalties.
There are plenty of reasons you’ll want to learn to navigate the Nanny Tax:
- You’ll avoid costly fines and penalties.
- You’ll protect yourself as an employer.
- You’ll help your nanny build her employment history.
- You’ll ensure that your nanny gets the Social Security and Medicare benefits she’s entitled to when she retires.
- You’ll ensure she can receive unemployment benefits when your children no longer require her care. Sittercity has partnered with SurePayroll, which can help easily and affordably handle all the tedious payroll tax work for you.
Disclaimer: Sittercity does not advise on any personal income tax requirements or issues. Use of any information from this site or any other website referred to is for general information only and does not represent personal tax advice either expressed or implied. Many variables can affect your tax issues and tax laws change frequently. You are encouraged to seek professional tax advice for personal income tax questions and assistance. Some links to professional tax agencies are also provided for your convenience.
Understanding the Nanny Tax
Under the law, your nanny is considered a "household employee” because you control what work she will do or set requirements on how that work will be done. For any household employee, you may need to withhold (and pay) Social Security and Medicare taxes, pay federal unemployment tax, or both – depending on your nanny’s income.
Here is a quick breakdown:
- If you paid your nanny $1,900 or more in 2015, you should withhold and pay Social Security and Medicare on all of her wages.
- If you paid your nanny $1,000 or more in a quarter in 2015, you must pay the federal unemployment tax, or FUTA. (You may also owe state unemployment taxes.)
Are there any exceptions?
The IRS does make a few exceptions, all of which are outlined in IRS Publication 926.
|You don’t have to pay Social Security and Medicare taxes in 2015 if your nanny is:||You don’t have to pay FUTA taxes (unemployment taxes) in 2015 if your nanny is:|
|Your spouse||Your spouse|
|Your child under 21||Your child under 21|
|Your parent||Your parent|
|Under 18 any time during 2013||It's important to remember that if your nanny is under 18 and exempt from the Social Security and Medicare taxes, you've still got to collect FUTA taxes if you pay her more than $1,000 in a quarter.|
Paying Social Security and Medicare in 2015
|Both you and your nanny’s tax rate is 6.2% for Social Security and 1.45% for Medicare. So deduct 7.65% from your nanny’s pay, and you'll have to also pay 7.65% of your own money.||EXAMPLE: If your nanny makes $100 each week, you should withhold $7.65 from each paycheck and pay your nanny the remaining $92.35. You'll then contribute $7.65 of your own money to pay your share of the taxes.|
Paying Federal Unemployment Tax (FUTA)
|The FUTA tax amounts to 0.6% of FUTA wages. "FUTA wages" are capped at the first $7,000 of your nanny's cash wages during the year. The FUTA tax comes entirely from your own funds. No withholding allowed.||EXAMPLE: If you pay your nanny $200 each week, this makes her first quarter wages (January - March) come to a total of $2,600, which is more than the $1,000-per-quarter limit we discussed earlier. So you will be paying FUTA taxes. At $200 per week, your nanny's annual salary is $10,400 so 0.6% on the first $7,000 means you’d pay $42 for FUTA taxes for the entire year.|
Forms and Payment
To report your nanny's wages and those federal unemployment taxes, you'll need certain tax forms.
- Form SS-4: Fill out Form SS-4 or apply online through the IRS to obtain your Employee Identification Number (EIN) – which you’ll need for tax forms. By the way, it's more secure to use an EIN than your Social Security number on forms you might lose!
- Form W-2: Fill out Form W-2 if you pay Social Security and Medicare wages of $1,900 or more, and give Copies B, C and 2 to your nanny. Copy A (along with Form W-3) goes to the Social Security Administration.
- Schedule H: If you pay your nanny cash wages of $1,900 or more file Schedule H.
- Form I-9: Have your nanny complete this form when hired and be sure she shows you her Social Security card.
- Form 1040: When you file your federal tax return, attach Schedule H to Form 1040. Pay by April 15.
Tax Credits Can Help!
Tax Breaks. Whether you get a tax credit or take advantage of a flex spending account, there are significant tax breaks for families employing a nanny. In fact, many families realize that their tax liability can be greatly reduced by $250 to $1,200 per year by exploring the following:
- Pre-tax Flexible Spending Accounts. Check with your employer, some companies offer these accounts (sometimes called "cafeteria plans"), which allow employees to contribute a certain amount of their pre-tax salary if it will be spent on qualifying payments like child care.
- The Child and Dependent Care Tax Credit, which can provide you with up to 20% of your child care costs in the form of a tax credit. To receive this credit, you must include Form W-10 and Form 2441 with your annual federal tax return.
There are restrictions on both of these options according to federal law, so be sure to investigate your eligibility.
How SurePayroll Can Help
If nanny taxes still make you nervous or sound like a lot more time than you want to spend on paperwork, SurePayroll can help. How?
- SurePayroll makes payroll EASY: SurePayroll does all the calculations, including taxes, benefits, paycheck deductions, bonuses and more. You just enter hours, review and approve!
- SurePayroll saves time. SurePayroll pays and files all the nanny payroll tax paperwork for you. Plus SurePayroll's direct deposit is instant, paychecks can be printed at any time and all payroll information is accessible online 24/7.
- SurePayroll gives you peace of mind. SurePayroll is backed by 40 years of payroll experience. If you ever receive a nanny tax notice from the IRS, SurePayroll will take care of it on your behalf.