Know the Rules for Nanny Payroll Taxes and Employing a Nanny

Nanny payroll taxes are those FICA taxes (Social Security/Medicare/Medicaid) and state payroll taxes that apply to qualified nannies and other household employees. For those employing a nanny, it’s essential that you follow the requirements for withholding, tracking, filing, and paying these taxes.

Advanced Micro Solutions (AMS) offers software that can provide basic support for your household employee forms on 1040 Sch H, as well as nanny payroll software that can automatically calculate your nanny payroll taxes, process paychecks, and tie this payroll information to your quarterly and end-of-year filing forms.

Numbers to Know for Nanny Payroll Taxes

Looking for official guidance? Check out this online resource from the IRS. Here are some of the key highlights from this guide:

  • Just like any other employer, 15.3% of an employee’s wages must be paid in these FICA taxes. Typically, the employer and employee each contribute 7.65% of the total wages, though some households choose to pay all the applicable payroll taxes for their household employees.
  • When you pay wages of $2,000 or more in any calendar year, the full 15.3% payroll tax applies. If you hire a nanny for a short period of time and end up paying more $1,000 in any calendar quarter, you have to pay a 6% federal unemployment tax.
  • Regardless, you can discount any payments made to and services rendered by a spouse, parent, child under the age of 21, and anyone under the age of 18. It’s also your responsibility to verify that the person can legally work in the U.S.

Nanny Pay Amounts vs. Worker Classification

Knowing the rules for employing a nanny is essential, but here’s the real trick: Don’t let them confuse you. Yes, the IRS sets specific wage amounts for payroll taxes and employing a nanny, but they only apply if the worker classification is a household employee and not an independent contracting service.

It’s important to note this fundamental difference because you may be used to quickly scanning online resources for the information you’re looking for. This can lead some people to prematurely zero in on the IRS guidelines for the minimum pay requirements. The $2,000 annual threshold can be easily reached through commercially available babysitting and household cleaning services, but if they’re classified as a self-employed contractor or independent business, then these total payment amounts are irrelevant. Check out Publication 926 to better understand the difference, or ask the IRS to make an official determination using Form SS-8.

Calculate and File Nanny Payroll Taxes

If you do have to withhold, track, and pay these payroll taxes, AMS has the best software support available. It all starts with our Forms Filer platform. This intuitive, menu-driven solution has all the data management features necessary to set up your basic employee/payee files and to prepare the information that’s to be printed on the relevant IRS forms. From there, you can add our Forms Filer Plus module for 1040 Sch H and household employee filing forms. Or, you can add AMS Payroll for a software solution that can handle your week-to-week paychecks and payroll processing.

Looking to get started? No need to wait. Buy and download our software online at any time. You can also download our demo software, or talk to our Sales and Information team at (800) 536-1099.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.