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| Cathy A. Robinson, CPA Senior Manager robinson@hwco.com |
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.
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