Working Parents: Are you affected by the Nanny Tax?



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.

Plan Now, Save Later: What To Do After Your Child Graduates

 

Cathy A. Robinson, CPA
Senior Manager

 

 

 

Do you have a child that recently graduated from college? Maybe you have a child who will be graduating within the next year.  Did you know that your taxes could be impacted?

 

Once a child is no longer a full-time student, you may not be able to claim them as a dependent. If you’re a single parent that claims head of household filing status, this is especially important for you.   Should your child find a job within six months of graduating you are no longer able to claim them and use the head of household filing status as they will most likely have earned more than $4,000. Your tax filing status will go from head of household to single and the credits you normally could qualify for will no longer apply. In order to make sure you don’t end up owing at the end of the year, be sure to talk to your accountant about making the necessary adjustments to your withholding and estimated tax payments should this situation apply to you.  

 

This doesn’t necessarily mean that you can’t continue to claim them after they graduate college. This is when the support test comes into effect. If the child cannot provide half of his or her own support then you can claim them. They’re considered a relative dependent. If the child’s gross income for the year is only $4,000, you can claim them.