What Makes a Nanny an Employee in the Home?
There are guidelines from the Internal Revenue Service (IRS) that simply define what makes a nanny an employee in the home. If you control the work that the nanny does and how she does it, then the nanny is considered your employee, regardless of where she is employed or how her salary is paid. According to the IRS, a person is not your employee if you hire them through an agency that controls the work to be done and how it is done, or if the worker determines what they do and how they do it.
Nanny Tax Exceptions
If the nanny is actually an employee and not an independent contractor, you do not have to pay nanny taxes if she is:
- Your spouse
- Your child who is under 21 years old
- A minor under 18 years old, unless the work the minor provides is their primary job for you and they are not a student
You also do not have to pay nanny tax if your parent provides childcare services for your child who is under 18 years old, or an older child who has a mental or physical disability that prevents them from taking care of themselves for at least four consecutive weeks in the quarter during which the care was provided, and you are divorced and no longer married, or living with a disabled spouse who is unable to personally care for your child for at least four consecutive weeks in the quarter.
Taxes You Owe on the Nanny
Nanny tax is not limited to Social Security and Medicare taxes (known as FICA taxes) that are typically split evenly between the employer and employee. It also includes withheld federal income tax, although you are not required to contribute to this part. Federal unemployment tax is also taken into account.
Social Security and Medicare Taxes (FICA)
You have a legal obligation to withhold FICA taxes from your employee’s earnings if you pay them $2,400 or more in cash wages in 2022, or $2,600 or more in 2023. These taxes are a flat rate, so you won’t have to do complex calculations to figure out how much to withhold.
You are responsible for paying half of it: both you and your employee must pay 6.2% for Social Security and 1.45% for Medicare, for a combined total of 7.65% for each of you – or 15.3% including both contributions. The IRS expects you to pay the full 15.3% if you neglect to withhold FICA taxes from your employee’s wages.
You don’t have to send the money to the IRS with each pay period, but you may want to set it aside in a separate dedicated bank account so it’s available when it’s time to pay.
You only have to pay Social Security tax on up to $147,000 of your employee’s wages in 2022 and up to $160,200 in 2023. Earnings above these amounts are exempt from Social Security, although there is no similar rule or cap for Medicare.
Only cash wages are subject to FICA taxes, not the value of food or clothing or any other items you may provide.
Income Tax Withholding
Nanny taxes do not include contributions to the employee’s income tax, and you do not have to withhold income tax from their wages unless they ask you to do so. Even then, it is up to you to agree. You will need to do the proper calculations for withholding if you agree, and you will need to send this money to the IRS on behalf of your employee.
You may want to consider hiring a tax professional to assist with income tax withholding, as these calculations can be somewhat complex.
Tax
Federal Unemployment
Homeowners are also responsible for the Federal Unemployment Tax Act (FUTA) if they pay a combined total of $1,000 or more to all their employees in any given quarter, up to $7,000.
Source: https://www.thebalancemoney.com/preparing-to-pay-the-nanny-tax-3544887
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