The Payroll Blog

nanny payroll part 1 - two parents looking over tax bills

Nanny Payroll Part 1: Do I Owe the Nanny Tax?

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Just when you thought being a parent was hard enough, now you hear friends talking about the “nanny tax.” And maybe you’ve read the headlines about big-name politicians getting burned during confirmation hearings because the opposition found out they didn’t pay their nanny taxes.

You're probably wondering if you owe it. Actually, you're probably wondering what exactly the nanny tax is anyway. It's really just a different name for something called the "payroll tax." Employers are responsible for deducting and matching Social Security and Medicare Taxes from their employees' taxes. People usually lump those taxes together and call them the payroll tax. And when you're responsible for collecting and paying those taxes because you hire a nanny, it's called the nanny tax.

The good news is that a lot of parents don't owe the nanny tax, at least to the federal government. According to IRS Publication 926, you're exempt from paying the nanny tax and the Federal Unemployment Tax Act (FUTA) in 2018 if your nanny is a:

• Parent
• Spouse
• Child under 21

You also don't owe the nanny tax if your nanny is under age 18 at any point during 2018. Unfortunately, that rule doesn't apply to FUTA.

So, when do you owe the Nanny Tax?

• If you pay your nanny $2,100 or more in 2018 and she or he doesn't meet any of the exemptions, you've got to pay.
• And if your nanny earns $1,000 or more in any calendar quarter in 2018 and doesn't qualify for any of these exemptions, you're responsible for FUTA payments and paperwork. (Remember, the "under 18" rule doesn't apply to FUTA.)

If you meet those criteria, the IRS considers you a household employer, and just like any employer with even one employee is responsible for payroll, you're on the hook for nanny payroll.

On top of that, your state may require you to pay and withhold certain nanny taxes and state unemployment taxes, even if you're exempt from paying Uncle Sam. Your state's department of labor or department of revenue should have that information, or your accountant should be able to point you in the right direction.

Learn the ins and outs of paying and filing the paperwork for Social Security and Medicare taxes for your nanny.