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When it comes to nanny taxes, the top questions we hear from families are:
Is a nanny considered an employee or an independent contractor?
Are paying taxes affordable?
How can I calculate my monthly expenses for nanny salary and taxes?
Through discussing these points, we hope to clear up any misconceptions families have about nanny taxes.
Household Employee vs. Independent Contactor
The law makes it quite clear that individuals such as nannies, housekeepers, senior caregivers, personal assistants, etc. who are paid to perform services in or around a family’s home are considered household employees, NOT independent contractors. Therefore, families must follow all state and federal labor laws while employing their nanny or household employee, including paying nanny taxes. If a family pays their nanny over $1,600 for the 2008 calendar year, they are responsible for paying nanny taxes as well as withholding taxes for that employee.
Family’s share of nanny taxes: (Reflects 2008 Info)
State Unemployment Insurance (amount varies by state)
Federal Unemployment Insurance (0.8% of first $7000 gross earnings)
50% of Medicare and Social Security (7.65% of the employees gross earnings)
Families are also required to deduct 50% of Medicare and Social Security (7.65% of the employees gross earnings) from the nanny’s salary and submit the payment along with their employer taxes. Although, it is not required by law to deduct the nanny’s state and federal income taxes from each paycheck, doing so will help the nanny avoid a large payout for that tax year.
Nanny Taxes – Affordable?
Many families want to know if they can afford to hire a nanny when factoring in nanny taxes. The great news is – yes! Through taking advantage of tax breaks such as Dependent Care Accounts / Flexible Spending Accounts (available through your employer) and Child and Dependent Tax Breaks, families can often offset or even exceed their nanny tax payments. That means that by paying taxes legally, families can often actually save money!
Free Nanny Tax Calculator
For families interested in estimating their nanny tax payments, feel free to utilize Breedlove & Associates’ Free Nanny Tax Calculator.
Families who are interested in handling their own nanny taxes can take advantage of many nanny tax softwares available online. However, we certainly can appreciate that processing payroll and tax payments can be a daunting task for many families. For families who want to hire a professional service to process the nanny payroll and tax payments for them, we highly recommend that families contact Breedlove & Associates, the experts in household employee taxes. They provide free consultation, and we think you will be pleasantly surprised to learn just how affordable their services are. Breedlove & Associates provides free consultations and will professionally answer all of your nanny tax or household employee tax related questions.
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