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Related Article: 5 Surprising Costs of Raising a Child While you’re at it, why not discuss paid time off and other worker quality of life issues with your employee? If you care about the person who looks after you, your kids, your parents, your spouse or your home you should pay the nanny taxes the law requires. Why? Because your ex-employee won’t have employment history as far as the IRS is concerned and won’t have had unemployment taxes withheld. If someone whose employer doesn’t pay nanny taxes gets let go, he or she generally can’t access government unemployment insurance.
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If the person who works in your home is working off the books he or she isn’t making the Social Security tax payments that translate into checks in retirement, plus disability, life and survivor insurance.īeing on the books offers benefits beyond Social Security. One of the biggest reasons to pay your nanny tax, though, is that it helps your employee. The IRS has sued folks for back taxes in the tens of thousands of dollars for unpaid nanny taxes.
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If that doesn’t motivate you, fear of IRS punishment might. Related Article: Childcare Subsidies: How Much Is Enough? Why Pay?įirst off, paying the nanny tax is the law. If you dread filling out forms as much as I do this may sound daunting, but it’s the right thing to do. Then, come tax time, you’ll fill out IRS Form 1040 Schedule H (Household Employer Taxes). You’ll need their Social Security number or tax ID, and you should register yourself as an employer with state and federal tax authorities.
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You should have that person fill out nanny tax forms (an I-9 and a W-4). Nanny tax compliance starts when you hire someone to work in your home. The Federal Unemployment Tax (FUTA) kicks in if an employer pays an employee $1,000 or more in any quarter of a calendar year. So, if you pay someone a wage at or above that threshold you should be paying nanny taxes. The nanny tax kicks in after a certain wage threshold.įor 2015, that threshold is $1,900 for the year.
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These days, nanny tax services and nanny tax software make it easier than ever to comply with IRS rules, but it’s still something many Americans neglect. Experts estimate that between 80 and 90 percent of people who should be paying the nanny tax aren’t doing so. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.”Īs clear as those IRS rules are, the nanny tax has an extremely low rate of compliance.
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If the worker is your employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. The worker is your employee if you can control not only what work is done, but how it is done. Here’s a direct quote from the IRS website: “You have a household employee if you hired someone to do household work and that worker is your employee. The IRS is pretty clear about what triggers the add-on to your federal income taxes known as the household employer tax or “nanny tax.”