If you pay a nanny $1700 or more for your childcare at home, you owe the Nanny Tax. The employer has to pay the nanny tax viz. FICA and FUTA taxes to the Internal Revenue Services. In addition, you will most likely owe state unemployment and compensation taxes for employing these domestic workers.
FICA is the largest nanny tax which is at 15.3% and the employer and the nanny worker each owe half of it. You do not withhold her half share but you are liable for all of the FICA tax.
FUTA or Federal Unemployment tax is owed on the first $7000 of the nanny’s wages. When the nanny earns $1000 per quarter, the FUTA tax is 0.8%, this is then when you pay your state employment tax on time. In case of late payment, FUTA rises to 6.2% of the nanny’s wages. Federal Income Tax withholding is only done at the request of nanny for a W-4 form and is rarely done for domestic employees in this situation.
Both nanny taxes on nanny’s wages are part of your personal income tax return. These taxes are calculated on H form attached to your income tax return. The derived sum is transferred on your 1040 return and paid as a part of your personal tax liability. During calculating nanny wages, you have to add the 7.65% that you do not withhold to the nanny annual wages to determine the correct taxable amount.
If your nanny taxes are unpaid, an interest will be charged by IRS until you repay. In order to avoid such situation, you have to make quarterly estimated tax payments on your FICA and FUTA. You are also needed to file a tax identification number and issue W-2 form to your nanny and file one copy with the IRS.
If an employee is working in your house for which there is a requirement of filing Household Employment Taxes, you might want to enlist the services of tax attorney to help you in determining when and what you need to pay IRS in order to comply with tax requirements regarding domestic employees. You cannot become free by paying only salary to the employee whom you have employed for your child care. There are some other legal obligations also. You have to fulfill them properly otherwise you have to face the bad results.
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Nanny Tax
