Here are just some of the benefits of paying by the rules: Paying the “Nanny Tax” is not only the law and right thing to do, but paying your nanny “above the table” is beneficial to both the family (employer) and the nanny in several ways. Benefits of Paying Your Nanny “Above the Table” 15.2%).įamilies that fails to comply, or who misclassify a nanny or other household employee as a freelancer or an independent contractor, face not only legal consequences for non-compliance, but will be required to pay not only their own share of the Social Security and Medicare tax, but also the employee’s share that they failed to withhold. Household employers have the option to not withhold the employee’s share but pay the total tax themselves (i.e.
You as the employer must pay the other half of those taxes. One-half of the Social Security (6.2%) and Medicare tax (1.45%) is withheld from your employee’s wages. Social Security and Medicare taxes are paid by both the employee and the employer at the current total rate of 12.4% and 2.9 % of gross wages, respectively. It is important to be sure the IRS knows you are registering as a household employer because you are not required to file certain quarterly returns that business employers are required to file (e.g., Forms 941 and 940). When you apply for an EIN, be sure you indicate that you are a “household employer”. Here is the official IRS link: EIN Online. You can apply online and get your federal EIN within minutes. This EIN is used whenever you deal with the IRS or other relevant agencies with respect to your household employment taxes. Typically, if you employ household staff and pay them above these wage thresholds, you are also required to register with the IRS as an employer and receive an Employer Identification Number, or EIN.
If you paid $1,000 or more to any household employee in any calendar quarter of this year or last year, you are required to pay the federal unemployment tax as well. If you pay $2,400* or more to your household employee this year, you must withhold and pay Social Security and Medicare taxes, commonly known as the “Nanny Tax”. Key Things to Know about the Nanny Tax in 2022 You may also have state unemployment, disability or other employment tax obligations as well. If the worker is your employee, and you pay them over a specific wage amount, you are required by federal law to withhold and pay Medicare and Social Security taxes on those wages (commonly called FICA taxes), as well as federal unemployment taxes (FUTA).
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