If you employ someone who’s subject to the “Nanny Tax,” you aren’t required to withhold federal income taxes. You have to withhold only if your nanny asks you to and you agree to withhold. (In that case, have the nanny fill out a Form W-4 and give it to you, so you can withhold the correct amount.) However, you may be required to withhold social security and Medicare tax (FICA).
What is the Nanny Tax on Household Employees?
And you may also be required to pay (but not withhold) federal unemployment (FUTA) tax. FICA: You have to withhold and pay FICA taxes if your nanny earns cash wages of $1,800 (annual threshold) or more (excluding the value of food and lodging) during the calendar years 2012 and 2013. If you reach the threshold, the entire wages (not just the excess) will be subject to FICA.
Nanny Tax and FICA (Household Employees)
However, if your nanny is under age 18 and child care isn’t her principal occupation, you don’t have to withhold FICA taxes. Thus, if your nanny is really a student who is a part-time baby-sitter, there’s no FICA tax liability for her services. On the other hand, if your nanny is under age 18 and the nanny job is her principal occupation, you must withhold and pay FICA taxes.
How to pay the Nanny tax?
You should withhold from the start if you expect to meet the annual threshold; your nanny won’t appreciate a large, unexpected withholding from her pay later on. If you aren’t sure whether the annual threshold will be met, you can still withhold from the start. If it turns out the annual threshold isn’t reached, just repay the withheld amount. If you make an error by not withholding enough, withhold additional taxes from later payments.
Obligation to pay FICA taxes
Both an employer and a nanny have an obligation to pay FICA taxes. As an employer, you are responsible for withholding your nanny’s share of FICA. In addition, you must pay a matching amount for your share of the taxes. The FICA tax is divided between social security and Medicare. For 2012, a two-percentage-point reduction in the employee’s share of social security tax is in effect. Therefore, the social security tax rate is 6.2% for the employer and 4.2% for the nanny, for a total rate of 10.4%. The Medicare tax is 1.45% each for both the employer and the nanny, for a total rate of 2.9%. For 2013, the social security tax rate is 6.2% for the employer and 6.2% for the nanny, for a total rate of 12.4%. The Medicare tax is 1.45% each for both the employer and the nanny, for a total rate of 2.9% on the first $200,000 of income.