Breaking Down Nanny Taxes - An Outline for Parents
For tax purposes, your nanny may actually be referred to as a household employee. This may be the case if you have control over when and how she works. Do you tell your nanny how and when to care for your child? If so your nanny could be a household employee and therefore you may need to pay the nanny taxes. This depends in large part on how much you pay the nanny and whether or not there is a familial relationship.
Here are the income parameters: (please note these are set by the IRS and may change annually)
- Quarterly - In 2016, if you pay your nanny $1,000 or more in a quarter, you must pay the federal unemployment tax or FUTA. It is possible that you may also owe state unemployment taxes.
- Annually - In 2016, if you pay your nanny $2,100 or more you must withhold and pay Social Security and Medicare on wages that exceed $2,100.
There are a few important exceptions that are outlined by the IRS. FUTA Tax Exceptions to Nanny Taxes:
You will not have to pay FUTA taxes if your nanny is your spouse, your own child under age 21 or your parent. Note, in 2016, if your nanny is NOT your own child and is under 18, you will still need to collect FUTA taxes if the nanny’s pay is more than $1,000 in a quarter. Medicare and Social Security Exceptions to Nanny Taxes:
You will not be required to pay Medicare or Social Security taxes in 2016 if your nanny is your spouse, your child under age 21, your parent or a child who is under 18 years of age at any time during 2016.
For more details on exceptions to paying the nanny tax you can review IRS Publication 926
. What Goes Into Nanny Taxes? Forms, Filings, Taxes & More.
There is a lot that goes into nanny taxes, including federal and state taxes, forms and filings. We’ll cover the forms for setup first. Once you hire your nanny you’ll need to fill out these forms immediately. Be sure you understand how to use the following: Form I-9
This is a form which shows your nanny is eligible to work in the US. You’ll have her complete it and be sure she shows you the appropriate document(s) as indicated in the Form I-9 instructions. Form SS-4
This is a form you will need to fill out – you can do this online through the IRS. You’ll do this to get what is called an Employer Identification Number which you’ll need for all your nanny tax filings. Form W-2
A W-2 is a required statement of employee gross earnings, Social Security and Medicare earnings, as well as federal, state and local taxes withheld. If your nanny earns more than $2,100 and does not fall under the exceptions, W-2s are prepared by the employer and given to the employee by January 31. The nanny will get copies B, C, and 2 of the form. You get Copy A which then gets sent to the Social Security Administration. Form W-3
This is another form called a transmittal form sent to the Social Security Administration which shows total earnings, Social Security wages, Medicare wages and withholding for all employees for the previous year. The key here is that it includes all employees, meaning if you employ more than one nanny in a year, you’d submit this for both of those nannies. Form W-4
This is for your nanny. Though you are not required to withhold employment taxes from your nanny’s pay – she may ask you to. This form details the correct number of allowances for your nanny. Schedule H
When your nanny earns cash wages of $2,100 or more (in 2016) you’ll need to fill out and file a Schedule H with the IRS. Form 1040
Schedule H gets attached to your federal tax form Form 1040 which is due to the IRS by April 15.
How Do I Calculate Nanny Taxes?
Now that you know what forms need to be filed when, you’ll need to know exactly how you’ll calculate the taxes. We’ll outline what you are required to withhold. Many choose to file quarterly estimated payments.
Medicare: You and your nanny are both required to pay this tax. For 2016 the tax rate is 1.45%.*
Social Security: You and your nanny are both required to pay this tax. For 2016 the rate is 6.2%.* *Both you and your nanny will owe a total of 7.65% in Medicare and Social Security taxes. So if your nanny makes $1000 per week, you will deduct $76.50 from her pay and you would add an additional $76.50 for your portion of the tax due.
FUTA: Only you are required to pay this tax – so be careful not to withhold from your nanny’s pay. The FUTA tax rate after credit is 0.6% of FUTA wages which are capped at the first $7,000 of your nanny’s cash wages during the year. In other words you will not owe more than $420 for your nanny’s FUTA tax. You may be required to pay state unemployment taxes for your nanny. This varies from state to state so be sure to check with your state.
When and How You Pay?
When and how you pay will be largely dependent upon how much your nanny earns and of course your state filing schedules may be different depending on where you live.
The good news is with SurePayroll you don’t have to worry about any of this.
Here are 5 reasons to leave the nanny taxes to us!
- SurePayroll does all the calculations, including the taxes, deductions, holiday pay, benefits, etc. You simply have to enter hours, preview it and approve! You can even do it from our free handy app!
- SurePayroll automatically pays and files the taxes for you. You don’t have to worry about filing schedules and whether or not you have the right forms ready!
- SurePayroll prepares your employee's W-2 and delivers it electronically to your account center in early January. We’ll also handle all the paperwork including a quarterly 1040-ES and provide a signature-ready Schedule H for you to include with your annual 1040.*
- SurePayroll will also handle your nanny’s employment tax deductions for her – if you so choose. This means you’ll also be saving your nanny lots of time and trouble. And your nanny can enjoy direct deposit and check her payroll information on our free handy app.
- SurePayroll provides exceptional payroll support. If you ever have a question, you can get help on your terms through our online help center, email, or live chat and phone support 6 days a week!
Now that you’re a parent and an employer – you have more than enough to worry about – forget nanny taxes, trust SurePayroll like tens of thousands of other parents across the US. *If you employ a nanny in the state of California, SurePayroll only supports employers who are designated as quarterly filers with the state. Annual filers would need to change their filing status to quarterly.