Understanding the Nanny Tax for Household Employers
If you employ a household worker who isn't an independent contractor, you may be required to pay employment taxes on the worker's cash wages. This is commonly referred to as the "nanny tax."
Tax Requirements for 2024
In 2024, when a household employee's cash wages reach at least $2,700, you must:
Social Security and Medicare Taxes: Pay the employer share of Social Security (6.2%) and Medicare (1.45%) taxes. Additionally, you must withhold the employee share of these taxes (also 6.2% and 1.45%, respectively).
Federal Income Tax: You aren’t required to withhold federal income tax from your household employee's wages. However, if the employee requests and you agree, you can withhold federal income tax.
Federal Unemployment Tax (FUTA): You must pay federal unemployment tax on wages of $1,000 or more in any calendar quarter. This tax is assessed only on the first $7,000 of wages paid per year.
Managing Your Tax Obligations
To meet these obligations, you can increase your quarterly estimated tax payments or increase withholding from your wages. Here’s a step-by-step approach:
Determine Your Tax Liability: Calculate the total wages paid to your household employee and ensure that the Social Security, Medicare, and FUTA taxes are appropriately calculated.
Withhold Employee Taxes: Withhold the employee's share of Social Security and Medicare taxes from their paychecks.
Make Quarterly Payments: To avoid underpayment penalties, increase your quarterly estimated tax payments or adjust your wage withholding to cover the additional tax liability.
File Annual Tax Forms: At the end of the year, you will need to file Schedule H (Form 1040), Household Employment Taxes, with your federal income tax return. This form reports the Social Security, Medicare, and federal unemployment taxes you paid for your household employee.
Additional Filing Requirements
When filing your annual tax return, you must include:
Schedule H (Form 1040): This reports the total Social Security, Medicare, and federal unemployment taxes you owe for your household employee.
W-2 Form: You must provide your employee with a W-2 form by January 31 of the following year, showing the total wages paid and the taxes withheld.
W-3 Form: File Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration to summarize the W-2 forms issued.
Get Professional Help
Filing and paying nanny taxes can be complex, and it's crucial to ensure compliance with all tax regulations. Contact our office for assistance with your tax obligations and to ensure you are correctly handling your household employment taxes.
Conclusion
Understanding and managing the nanny tax is essential for household employers. By staying informed and compliant with tax requirements, you can avoid penalties and ensure a smooth tax filing process. For personalized guidance and support, reach out to our office.
