It’s the beginning of a new year and while most of us are still winding down from the holidays, many employers are gearing up for tax season. If you are hiring a nanny, this will be something you need to be aware of too! Here are some basics about nanny taxes;
Nanny Tax, not just for nannies.
According to Investopedia.com, nanny tax is a federal tax that anyone who employs help around there home, must pay. This includes more than just the nanny. If you hire a housekeeper, a doula, even a gardener or landscaper, you must pay this federal tax if that person works for you and earns more than $1900.00 in one year.
What does this tax include?
Nanny tax is inclusive of Social Security, Medicare and Federal Unemployment and any other applicable state taxes. This means that once you hire your nanny, you have to register your new hire, register yourself as a household employer and begin paying taxes.
This can seem overwhelming at first. But worry not! We work with a wonderful company, HomePay that makes this a simple process for you. More good news? According to HomePay, families are now entitled to a tax break which will typically balance out the amount paid into these taxes.
So what if I opt out of paying employer taxes?
Don’t risk it! Not paying employer taxes can turn into a big, ugly deal.
To begin with, when your family no longer needs the help of the nanny, the nanny is entitled to unemployment. If they apply for unemployment benefits and list you as their employer, when you haven’t been paying employer taxes… No unemployment benefits for the nanny and a highly likely tax audit for you.
And that’s just the beginning. Not paying employer taxes can also result in tax evasion charges or back taxes inclusive of interest and fees.
How do I set myself up to pay the nanny tax?
- Start by determining your nanny’s tax withholdings. More information on that here.
- Next you will need to apply for your Employee Identification Number with the IRS.
- Then report your new hire within 20 days of hiring your new nanny. Click here for reporting instructions in California or learn the reporting instructions for other states here.
- Lastly, create a W-2 for your new employee. Nanny Tax Tools provides an in depth look at what information you will need to create the W-2 as well as what to do with each part of this six part form.
Where can I find help?
HomePay offers several resources to take the stress out of managing your Nanny Tax. This free payroll tax calculator can help you estimate your employer taxes as well as any tax breaks that you may be eligible for.
Nanny Tax Tools offers a complete breakdown of the entire process.
Lastly, if all else fails, you can always contact your local IRS office to speak with an assistant near you.