Thursday, July 16, 2015

Working Parents: Are you affected by the Nanny Tax?

Cathy A. Robinson, CPA
Senior Manager
If you are a working parent you understand just how hard it can be to find someone who can help take care of your children. While many working parents may place their kids in a daycare facility, others hire people to come into their homes to take care of their children. What some people may not understand is that hiring a nanny means you may have to pay the Nanny Tax, and you have a household employee.


 If the annual wages are over $1,900, you are required by the IRS to withhold and pay social security and Medicare taxes.   However, there are some exceptions to those whose wages are subjected to these taxes.  You should check with your tax advisor on the exceptions.


Another tax that will be paid is Federal Unemployment Tax (FUTA).  This tax is .06 percent on cash wages and only the first $7,000 in wages is subject to this tax.  FUTA is not a tax that you withhold from the nanny’s pay.  It is a tax that is paid by you.


Depending on the state where you live, you will also need to look into filing and paying state unemployment tax and workers’ compensation.  You will need to complete applications for both of these items.


It is important to also note that paying the nanny tax is required if you are the employer. This means even if you used an agency to find your nanny, you are still required to pay the tax. If you are the employer,  you will also need to ensure that your nanny or in-house sitter fills out an I-9 form, a W-4 and a state income tax withholding form (if you live in a state with income taxes.)


The nanny tax is reported on Schedule H of your Form 1040.