A Guide to Nanny Tax

2007-03-08 10:33:40

( Financial )



Nanny tax is payable under the following conditions:

Social Security and Medical taxes is one kind of nanny tax which is payable if the nanny earns $1500 or more in a calendar year. Wages of spouse, a child under the age of 21 or wages received by a parent to care for your child should not be counted. Current taxes for cash wages are 15.3%; the employee pays for half of the taxes, and employer shoulders the other half. The employer is responsible for collecting the nanny’s share of the taxes by withholding it from their pay or choosing to pay for their share from your own pocket. If the nanny pays from their own pocket, they should not deduct this from the nanny’s wages. Payment of Social Security taxes are important to an nanny as this is used pay for their retirement, survivors and disability benefits. The Medicare taxes are paid to cover for their hospital insurance.

If you pay a total of $1000 of cash wages in a calendar year, you must also pay federal unemployment tax. The tax rate is usually at 0.8%. Salaries that amount to over $7,000 in one calendar year for a nanny is not subject to federal unemployment tax. The employer takes care of settling the federal unemployment taxes if they are required to pay it. Federal unemployment tax pays for unemployment compensation to nannies that lose their jobs.

In some states a state unemployment tax is also collected. For more information, you can contact your local labor department for income tax assistance.

In calculating your nanny’s wages for the calendar year, you should keep in mind that the following factors should not be counted as wages even if the amount exceeds $1500 in a calendar year:

Wages given to your spouse

Salaries given to a child under the age of 21

Wages of a parent should also not be counted. Wages should however be counted when your parent cares for your child who is under the age of 18 and/or has a physical or mental condition requiring special attention and care for one month. If you are divorced and have not married or have been widowed; if you are living with a spouse who has a mental or physical condition, requires care for at least one month and the said spouse is unable to care for your child, then wages should also be counted for the nanny who cares for them.

If a nanny is under the age of 18 whose main job is to provide services to you and is not a student, then their wages should also be counted in the $1500 computation.

Determining whether you need to pay nanny tax is a complex issue. Income tax help can be sought from the local IRS or via the local tax attorney. There are also certain tax software available in the market that can help you compute taxes that may be due.


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