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What You Need to Know About the Nanny Tax

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Have you been wondering whether you should be withholding taxes on your nanny’s wages?

Have you been unknowingly under-withholding on your taxes?

Many parents don’t realize their babysitters may cause them to incur additional tax liabilities.  Don’t let this be you!

What is the Nanny Tax?

The Nanny Tax is composed of wage withholdings (used to pay social security and Medicare taxes) and federal unemployment taxes. 

These taxes apply to many babysitters since the IRS classifies them as household employees, or individuals doing work in or around your home with specific instructions from you about what work is done and how it is done. 

Does the Nanny Tax Apply to You?

  1. Does your babysitter take care of your children in your home?
  2. Do you dictate what work your nanny does around your home and how it is done?
  3. Do you pay your nanny $1,900 or more in cash wages during the year?
  4. Is your babysitter an individual who is not your spouse, parent, or child under the age of 21?

If you answered “yes” to all of the above questions, then you are required to pay the Nanny Tax.

How Do You Pay the Nanny Tax?

  1. Withhold Social Security and Medicare taxes (which are 15.3% of cash wages).  Your nanny pays 7.65% and you pay 7.65%, and tax calculators can be found online!
  2. Withhold federal income tax.
  3. Get an employee identification number (EIN).  These can be applied for on the IRS website.
  4. Give your babysitter Copies B, C, and 2 of Form W-2.
  5. Send Copy A of Form W-2 to the Social Security Administration.
  6. File Form 1040 with your yearly federal income tax return (if you do not have to file a return, you can file Form 1040 by itself).

If you need additional help, Fazzio Law Offices employ tax experts who are experienced in dealing with the IRS and advising on tax issues.  Call Fazzio Law Offices a call at (201) 529-8024 or fill out our contact form (found on the right side of this page) for Nanny Tax assistance!

How Do You Benefit from Paying the Nanny Tax?

There are numerous benefits to both you and your babysitter for paying the Nanny Tax.

Paying the Nanny Tax can:

  • Lower your anxiety if you are ever audited by the IRS.  Paying the Nanny Tax if you qualify puts you in compliance with the IRS and gives you less to worry about if you are ever audited!  The consequences of not paying the Nanny Tax can be severe.  But the IRS’s steep penalties can be avoided through proper Nanny Tax payment.
  • Make you eligible for a tax break.  Paying the Nanny Tax may make you eligible for a tax break to help ease the Nanny Tax expense and your nanny’s wage withholdings.
  • Help your babysitter in the future!  A portion of nanny taxes contribute to your nanny’s unemployment benefits and Social Security and Medicare aid when he or she retires.

Paying the Nanny Tax shows your nanny you care about your nanny now and in the future, and eliminates the additional worry of under-withholding.

Still have questions about the Nanny Tax?  Or need assistance in preparing your Nanny Taxes? Call Fazzio Law Offices a call at (201) 529-8024 or fill out our contact form (found on the right side of this page) for help and answers!               

Category: Tax

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