When it comes to nanny taxes, the top questions we hear from parents 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 may have about nanny taxes.
Household Employee vs. Independent Contactor -
The law makes it quite clear that individuals such as nannies, housekeepers, personal assistants and others who are paid to perform services in or around a family’s home are considered household employees and NOT independent contractors. Therefore, families must follow all state and federal labor laws while employing their nanny or household employee, including paying employment taxes. If a family pays their nanny more than the threshold during the calendar year ($1800 for 2012) they are responsible for withholding and paying taxes.
Family’s share of nanny taxes include
State Unemployment Insurance
Federal Unemployment Insurance
50% of Medicare and Social Security
Any other local or state taxes.
Families are also required to deduct 50% of Medicare and Social Security 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.
The out of pocket tax expense is equivalent to about 10% of the nanny’s gross annual wages. For parents that pay their employee legally, there are tax credits and breaks available to offset this amount.
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 nanny tax software 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 will professionally answer all of your nanny tax or household employee
tax related questions during your free consultation.