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Everything You Never Wanted to Know About Nanny Taxes

Lots of people pay their nanny “under the table.” Should I do it too?

According to the IRS, if you pay a household employee such as a nanny, babysitter, elder caregiver or house manager more than $2,100 a year, you are a household employer. This means you’re legally required to register and pay employer taxes.

There are important benefits to following the law. It gives your nanny Social Security, Medicare and Unemployment Insurance benefits. It also allows her to build her credit. Finally, you never know when you might get nominated for the Supreme Court. And, we all know how that ends if you haven’t paid your nanny taxes.

Ok, I’m convinced I should follow the law, but how do I comply with those pesky “nanny taxes”?

It’s complicated, but generally, after you have registered as an employer with all the appropriate agencies and reported your new hires, you must:

  • Payroll - At every pay period, withhold certain state and federal taxes such as income tax, Social Security, and Medicare, and you must also calculate employer contributions such as unemployment taxes related to those wages.

  • Quarterly - submit the proper paperwork and payments to the correct agencies. The agencies will typically include the IRS, the State and any other local agencies that require remittances, including certain municipalities.

  • Year-End - provide your employee with his or her W-2 form, submit a copy of the W-2 and W-3 to the Social Security Administration, submit state reconciliations if required and prepare a Schedule H to file with your individual tax returns.

To report your nanny’s wages and pay federal unemployment taxes, you’ll need certain tax forms (list includes federal forms only):

Form I-9: Have your employee complete this form when hired and provide the required proof of ID.

Form W-4: Have your employee complete this form which dictates how income tax is withheld.

Form 1040-ES: On a quarterly basis send this form to the IRS along with payment to report taxes from previous quarter. Don’t forget that federal quarter dates do not line up with calendar quarters!

Form W-2: Fill out Form W-2 if you pay Social Security and Medicare wages of $1,000 or more, and give Copies B, C and 2 to your nanny. Copy A (along with Form W-3) goes to the Social Security Administration.

Schedule H: If you pay your nanny cash wages of $1,000 or more in a calendar quarter or 2,100 in a calendar year file Schedule H.

You can find all the information about your federal obligations in the IRS’s Publication 926 – Household Employer’s Tax Guide. The IRS estimates that it would take you 60 hours a year to comply with the federal nanny tax regulations. That doesn’t include what you have to do to pay state and local payroll taxes.

Under Florida law, a household employer becomes liable to pay state unemployment taxes on their nanny if the employer pays gross wages of $1,000 or more in a calendar quarter. You can find more information on the Florida requirements here: Employer Guide to Reemployment Tax.

If it all seems like too much, you can hire a service like Poppins Payroll to run your payroll and handle the nanny tax obligations for you.

It’s simple to sign-up with Poppins Payroll: You just enter your basic information, and Poppins does the rest. Poppins Payroll gets your tax ids, sets up your state, federal and local accounts, calculates all the withholdings for you and keeps track of your bookkeeping online. You manage and adjust your employee’s payroll on the web site. You can either pay your nanny by check or use the free direct deposit option. Best of all, at only $39 a month for everything, Poppins is less than half the price of its competitors.

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