Social Security & Medicare Taxes for Household Employees
The nanny tax actually consists of multiple taxes. Out of the taxes covered, Social Security and Medicare taxes are two of the most important ones you’ll want to understand when processing nanny payroll. These taxes are commonly referred to as payroll tax, but when dealing with nanny payroll, the taxes take on the name of the “nanny tax”.
The following steps outline what is most important for you to know about Social Security and Medicare taxes for your household employee(s).
- Verify your household employee is legally eligible to work in the United States
Your household employee(s) will need to fill out IRS Form I9, the Employment Eligibility Verification. Typically your household employee will show you forms such as a passport, Social Security Number card, driver’s license, or birth certificate to prove eligibility. While this is a form you don’t need to file, you must retain it for three full years after your nanny is no longer an employee.
- Start collecting Social Security and Medicare taxes from each paycheck
As we discussed previously, paying your household employee under the table is not legal. There are certain tax requirements that must be met for these employees. When you pay under the table, employees are unable to receive Social Security and Medicare tax benefits.
To stay compliant with these taxes, deduct 6.2% of your employees pay for Social Security and 1.45% for Medicare from each check. One idea to keep track of these deductions is by putting them in a separate bank account. Talk to your bank to see which account would be best to keep them in. By doing this you’ll be sure to have the money set aside when the time comes to pay taxes.
- Match the Social Security and Medicare taxes from each paycheck
In addition to withholding Social Security and Medicare taxes, you'll need to match them every paycheck. This means that you will put in your own 6.2% for Social Security taxes and 1.45% for Medicare.
- File a 941 every quarter
The IRS requires you to file Form 941 on a quarterly basis. Form 941 is the quarterly report of the wages paid to employees and withholdings you made as an employer. This form can either be mailed in or filed electronically. To ensure you never miss a deadline, mark these due dates on your calendar:
- April 30
- July 31
- October 31
- January 31
If your net taxes for the filing quarter are under $2,500, you'll send payment with your 941 Form. If not, you'll need to pay by electronic funds transfer.
- Know when to ask for help
Withholding taxes and keeping track of filing dates can be confusing and time-consuming. With the potential for tax mistakes to cost you big, it’s important to know when you should ask for help. There is do it yourself research, including looking over IRS Publication 926 which covers the many aspects to being a household employer or hiring an accountant or bookkeeper to look over any forms you have and confirm that you are withholding the proper amounts. A third option is to sign up with a trusted payroll provider to tackle your nanny payroll needs. By doing this, you can trust somebody else do the heavy lifting on paying your household employee(s). At SurePayroll, we know that you’re busy tackling everything in your life and don’t have the full time to dedicate to payroll and taxes. When trusting us with your nanny payroll, we guarantee that taxes will be paid and filed accurately*.
*If you receive a notice from the IRS, or any other tax agency, based on a filing that SurePayroll made, we’ll work with the agency to help resolve the issue on your behalf. And, if we’re at fault, we’ll pay all the associated penalties and fines.