Post a Question
Signup
Refer & Get Paid
Newsletter
|
Newsletter
Hiring a Nanny Comes With Tax Consequences
By The BIDaWIZ Team - November 3, 2009
Let me guess, you just a hired a nanny for your child & now you think everything will be peaches and cream. Well, you are probably right when it comes to taking care of the child but not when it comes to figuring out the NANNY Tax.
Yeah, that's right. You actually have to pay a nanny tax since the IRS considers your nanny a household employee. Although most of us don't think about it like this -- having a nanny is similar to having a professional chef or a limousine driver; they're all employees!
So What Taxes Am I Responsible For?
You must pay Social Security and Medicare tax (7.65% of wages is your share; total taxes is 15.3%) if you pay the nanny more than $1,700 in cash wages for the year (IRS Publication 926). If you pay less than $1,700, you will be exempt from both of these taxes.
Also, if you pay $1,000 in any calendar quarter in 2008 or 2009, you must pay federal unemployment tax (usually 0.8%) and maybe subject to state unemployment tax depending on your state. Any wages over $7,000 are not subject to the tax.
How Much Do I Withhold?
You can withhold 7.65% which is the employee's share of the taxes or you don't
have to withhold anything and just pay the 15.3% in taxes yourself.
Example
You hire Jane Andrews to care for your child 2 days a week for the entire year. You pay her $100 in cash wages per day. Jane is 35 years old and this is her primary occupation. So what are the taxes involved?
Jane's Gross Yearly Wages $9,600
Jane's Gross Quarterly Wages $2,400
Jane's Share of Yearly Taxes
Social Security $10,400 * 1.45% = $150.80
Medicare Taxes $10,400 * 6.2% = $644.80
Total = $795.60
Your Share of Yearly Taxes
Social Security $10,400 * 1.45% = $150.80
Medicare Taxes $10,400 * 6.2% = $644.80
Unemployment (Net) $7,000 *0.8% = $56.00
Total = $878.80
Based on the information above you can withhold $7.65 each time you pay your household employee for a net amount of $92.35. Or you can not withhold any and pay their share of the $7.65 yourself. If you do this, make sure you report the 7.65 in their wages for tax purposes for a total of $107.65.
Are Commuting Expenses Included?
As a result of the American Recovery Act, up to $230 of commuting
expenses won't count in the $1,700 cash wage threshold. So, if you pay your
employee $1,700 for the year and also pay $230 worth of your
employee's commuting expenses, you will not be subject to the Social Security or Medicare taxes.
What About Food & lodging...Do They Count?
No, food, lodging, clothing & any other non-cash items you give your household employee are not included in the $1,700 cash wage amount.
What if a Student/Minor is a "Nanny"?
Students are exempt from the Social Security & Medicare taxes. Also, if the employee is a minor (under 18 years old), they are exempt from taxes as long as babysitting is not their principal occupation.
What if Family Members Baby sit?
Your children who are under 21 that you pay to baby sit are also exempt from Social/Medicare taxes. In addition, they are also exempt for federal unemployment taxes -- students/minors are not.
What Tax Forms Do I File?
Well, you need a Employer Identification Number so you need to file for SS-4 to get one. Also, you need to give a W-2 form to your employee, file a copy to the government (Form W-3) and file Form 1040, Schedule H.
More Nanny Tax Questions?
If you have additional questions, our Tax Wizards are Here to assist.
Have Comments? Write to comments@BIDaWIZ.com
|