How To Increase Your Tax Withholdings

Form W-4

Click to open form W-4

Nanny taxes need to be paid-as-you-go throughout the year. Learn how to do it easily.

Avoiding the underpayment penalty

Your nanny taxes are added to your individual income tax liability which must be paid over the course of the year. This increase in taxes increases the chances of an underpayment penalty from the IRS. You can avoid this penalty as long as the taxes you pay or have withheld during the year are:

  • Equal to or more than your total tax bill from the year prior.
  • Or, are at least 90 percent of your current year tax bill.

The easiest way to pay the tax

The easiest way to pay your nanny taxes is to increase the amount of tax you have withheld from you own paycheck. You can do this by submitting IRS Form W-4 to your employer. Follow these steps below:

    1. Carefully work through the Personal Allowances Worksheet.
    2. On line F enter a “1” to account for the childcare expense credits you will claim.

Childcare expense allowance

    1. Complete the actual form W-4 on the bottom of the page.
    2. Take the “Total Amount Due to IRS” from the tax calculator and divide it by the number of pay periods left in the year. Enter the total on line 6.

Additonal withholdings

  1. Turn the completed W-4 into your employer.

If you are self-employed or would prefer to make your tax payments directly to the IRS, you can use Form 1040-ES, Estimated Tax for Individuals. The instructions are provided in the document and you can make your payments by check or money order. Keep in mind that these payments will need to be made throughout the year.


Next step: State Tax Requirements