The Payroll Blog

News, tips, and advice for small business owners

Guide to Nanny Taxes

Posted On
8/3/2020
By
Stephanie Davis

Did you know that failing to pay the nanny tax can cost you up to $25,000 in fines and penalties?

In our four-page Guide to Nanny Taxes, you’ll learn about the nanny tax, exemptions for paying the nanny tax, definitions of tax forms you’ll likely need to know about and more. As a preview, below is some of the information you'll find in the guide. 

Understanding the Nanny Tax

You should be classifying your nanny as a household employee which means there some payroll and tax items you need to be aware of. If you pay your nanny more than $2,300 or more in 2021, you are required to withhold Social Security and Medicare taxes. Additionally, if you pay your nanny more than $1,000 or more in a quarter in 2020, you must pay FUTA, Federal Unemployment Tax Act.

There are some exceptions to the nanny tax. The IRS fully covers exceptions in IRS Publication 926 but you are exempt from paying the nanny tax if your nanny is a:

  • Parent
  • Spouse
  • Child under 21

Social Security, Medicare, and FUTA Taxes

For 2021, both you and your nanny's tax rate is 6.2% for Social Security and 1.45% for Medicare. This means that you will withhold those amounts from your nanny's paycheck, and you'll also make a contribution to those taxes. 

The Federal Unemployment Tax Act (FUTA) rate is 0.6% of FUTA wages, which are capped at the first $7,000 of your nanny's wages during the year. You may also have state unemployment guidelines to follow, but because that varies by state, you'll need to check in with your yours to understand requirements. 

How a Nanny Payroll Provider Can Help

You chose to hire a household employee because you have a lot on your plate already. Throwing in the complexity of nanny payroll and taxes is something that is just going to be another time-consuming item on your to-do list. Thankfully, there are options for getting help with your nanny payroll. It's important to note that not all nanny payroll services are created equal and you'll want to do your research. Below are some of the top things you'll want to look for in your new nanny payroll service. 

  • Mobile access. Because you have a busy schedule with a lot to juggle, look for access to a free mobile payroll app available for iOS and Android devices so you can approve payroll on the go. 
  • No contracts. Due to the nature of having a nanny or other household employee, you may not necessarily have a long-term plan in place for employing them. If you get locked into a contract, but no longer have a nanny, that can lead to frustration and a waste of money. 
  • Support with tax forms. Because you are a household employer, there are some tax forms you need to be aware of. When you choose an online nanny payroll service, make sure that you're looking for one that can help with these forms. You'll want help putting together W-2's or 1099s for your nanny at the end of the year, and you'll also want assistance with Schedule H for when you need to file income taxes. 
  • Flexible payroll options. Between work, little league games, vacations, and other family activities, life can be so busy you forget to process payroll. It’s because of these “when life happens” moments that you'll want some flexibility. Some payroll services offer flexible options. Using SurePayroll as an example, we have same-day and next-day payroll options for when you need to run payroll fast. If your nanny is paid the same every week,  you can use our auto payroll feature and put payroll on cruise control. 
  • Award-winning customer service. Whether this is your first nanny or your sixth nanny, there will likely come a time when you need help with payroll. For those moments, you don't want to be stuck on hold forever or have no idea where to turn to for help. Look for an online payroll service that provides a variety of times and ways to get help. Bonus points if they have won awards for excellent customer service. 

Bottom Line

The nanny tax can be confusing, and overwhelming to handle, especially if this is your first household employee. If you are ready to get started, you can view and download our Guide to Nanny Taxes, or request a quote to talk to our sales team to better understand how we can help you with your nanny payroll needs.

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This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.