Understanding Nanny Taxes

Hiring a nanny is a great help for any household. Though many couples think about getting nannies at one point or another, not all get around to doing so, and nanny taxes happen to be one of the reasons why. If you are in the same situation and are stumped for the same reasons, don’t let nanny taxes get in your way. Here’s a quick guide to understanding nanny taxes and your various tax responsibilities when you hire a nanny.

A nanny tax is the tax you need to pay when you hire someone to take care of your children. Paying nanny taxes is a requirement of the federal government. The first thing you have to know is that it is your responsibility to report the taxes you need to pay. If you fail to make a report and pay your nanny taxes, you may be subject to penalties and interest on the unpaid taxes.

The amount of your nanny taxes will depend on the salary level you pay your nanny. The salary amount, however, will also be the main determiner whether you need to pay nanny taxes or not. If you pay your nanny less than $1,400 in a year, then you don’t have to pay taxes. However, nanny salaries nowadays usually go above that, so you will most likely be responsible for nanny taxes regardless of whether your nanny works full time or part time, or on an hourly, daily, or weekly schedule. Nanny taxes, however, are not necessary if you hire and pay your nanny through an agency.

Payroll nanny taxes come in various types. You have to pay social security, Medicare, federal unemployment taxes, and state unemployment and disability taxes.

The social security and Medicare taxes are often grouped together and are called FICA tax. The FICA tax, at 15.3% of the wages, makes up the largest portion of the nanny tax. The amount equivalent of that 15.3% will be divided between you and your employee. What you can do is subtract the designated amount from the pay you hand over to your nanny then use the money combined with your share to pay the nanny taxes. This kind of setup is called the Federal Income Tax Withholding or FIT withholding. Remember that FIT withholding is only applicable if your nanny gives consent to the particular agreement. However, there are cases where the employer pays for the entire FICA tax alone without any share from the employee.

Next, there’s the FUTA. This is only applicable for long term contracts between you and the hired nanny. The FUTA is only charged after your nanny’s total wages for a year reach $7,000 and if you pay more than $1,000 or more in a quarter of the current year. This, however, does not apply if your nanny is your own parent, your spouse, or your child who is under 21 years old. The FUTA rate is quite small, at only 0.8%, but under a specific condition, the condition being that you pay the state unemployment tax when needed. Otherwise, your FUTA rate will increase to 6.2% of the total wage.

You don’t have to get stumped halfway through looking for a helpful nanny who can take a load off your shoulders. One great way of getting more knowledge and information about nanny taxes is joining a free community like NannyReview.org where you can interact and gain firsthand advice from parents who have been through the same thing. And now, with the help of the community, you can enjoy a little convenience and rest by hiring a nanny.