What is the Nanny Tax?

In many ways, the nanny tax is no different than any other employee tax and withholding requirements. What’s different is the average nanny employer and their business experience. Rather than an expanding, profit-driven business, household employers are typically affluent but that doesn’t mean they have a background as an accountant or chief financial officer. Put another way, many parents consider hiring a nanny to help take care of their home and children, while failing to realize at first this type of hire requires an employer identification number and employer-based payroll and filing requirements. All of a sudden they’re scrambling around and asking: What is the nanny tax?

It’s a pain, yes. But an even bigger headache is the $25,000 you can face (on average) in fees and penalties by failing to pay their applicable household employee tax. Now, there are exceptions. Most notably, it doesn’t apply to contractor services who market and operate as commercial businesses. The nanny tax also doesn’t apply to a nanny who is your spouse, your parent, your child under the age of 21, or anyone under 18 at any time during the tax year. Otherwise, more than just cutting a check and being done with it, you’re going to need to comply with certain employer-based filing requirements.

The Same Tax on a Different Filing Form

Especially for household employers who don’t have a business background, here’s the good news: While you’re still responsible for withholding and accounting for nanny tax obligations, quarterly and end-of-year filing information is simplified by using Schedule H Form 1040. Some employers choose to fold their household employee forms in with the rest of their 94x employee filings.

How Much is the Nanny Tax?

At 15.3 percent, the applicable FICA taxes are the same. The breakdown for these payroll taxes is 12.4 percent for Social Security and 2.9 percent for Medicare/Medicaid. It’s also customary for the employee and employer to split these taxes equally at 7.65 percent, though some household employers will pay all these taxes for their nannies.

That said, you’ll also need to withhold and account for—or at least inform the nanny of—the applicable federal and state income taxes that he or she may be facing. You’re not technically required to withhold these income taxes, but you don’t want your household employee to unexpectedly get hit with a huge tax bill at the end of the year. You can estimate how much you should be withholding on behalf of the household employee using Form W-4.

Get Software for Easy Household Payroll and Filing Forms

Even if your nanny is your only employee paycheck, you may still be interested in Payroll Software support, especially when a comprehensive payroll solution is available for just over $200. Prefer to do your own manual payroll calculations or have an alternate payroll system but still need software support for your employer filing forms? Use Forms Filer Plus for a low-cost solution to your Sch H Form 1040 filing requirements. Regardless, you’ll able to take advantage of our intuitive, menu-driven platform software with a core set of data management features. You’ll already have everything you need to prepare your W-2, W-3, and 1099 forms. Check out all our nanny payroll software products and prices to build an effective and cost-effective software companion that will demystify the idea and process of being a household employer.

Want to see our accounting software in action? Download our free demo. You can buy our software online at any time, or call Sales and Information at (800) 536-1099.

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