Nanny Tax Frequently Asked Questions

Nanny Tax questions

Have a nanny tax question? Get answers here.

Answers to commonly asked questions

Why should I pay the nanny tax? My neighbors don’t.

There are several good reasons to pay “above the table”:

  1. There are real benefits for your nanny. If you don’t pay FICA taxes on your nanny, then he or she will not get credit for paying into Social Security and Medicare, negatively affecting your nanny’s future benefits. The taxes also give your nanny a verifiable source of income if your nanny every wants to take out a loan or buy a home. Your nanny will be taking care of your children, it’s in your best interest to make sure you’re taking care of your nanny.
  2. It’s the law. Tax evasion is no petty crime. Penalties can be very severe. People do get caught. Just the peace of mind from doing things legally is probably worth it.
  3. There are tax breaks and credits that can significantly reduce some of the expense. Check out the tax breaks and credits that can save you thousands.
  4. This site makes it relatively painless. We provide a step-by-step guide and help you with all the paperwork.
  5. Finally, it’s the right thing to do. As hated as taxes are, paying them is everyone’s civic duty.

Can I pay the Nanny taxes myself?

Yes, you absolutely can. You don’t need any special skills or training. Just follow this website. Start with the Nanny Tax Checklist.

Do I need to pay the Nanny Tax?

There are two criteria:

  1. You have a household employee.
  2. If you pay more than $1,700 in 2011 to any one household employee then you owe Federal payroll taxes (Social Security, Medicare, and Federal Unemployment). If you pay any employee $1,000 or more in any calendar quarter (3 month period), then you also need to pay State Unemployment taxes as well. See the tax calculators here.

Does my nanny count as a household employee?

The quick answer is that a nanny does count as a household employee, even if he or she was hired through an agency or works just part-time. If you hire someone to do household work and control what they do and how they do it, that person is a household employee. If your nanny is taking care of your children at his or her home, then the nanny is not a household employee and you would not be responsible for employment taxes.

What is the Nanny Tax and what are the rates?

The tax is comprised of 3 taxes:

  1. FICA Taxes (Social Security and Medicare): They total 13.3% of wages paid. 5.65% is the employee’s share, while 7.65% is the employer’s share
  2. Federal Unemployment Tax: The tax is 0.6% of wages paid up to $7,000. If you fail to pay your State Unemployment Tax, then your Federal rate jumps up by 5.4%. See the tax calculators here.
  3. State Unemployment Tax: This tax varies state to state a great deal. The average rate is 2.67% of wages paid up to $15,000. See more about state unemployment taxes here.

I’ll never get caught paying under the table, right?

True, the odds of getting caught are fairly low, but it does happen.The most common ways are:

  • You let a nanny go that files for unemployment. The State Unemployment Agency will fine you and then report you to the IRS.
  • Your nanny becomes disabled and files for Social Security disability benefits. The Social Security Agency will fine you and report you to the IRS.
  • Your nanny might try to do the right thing and file a tax return, raising the red flag with the IRS.
  • You could be audited by the IRS and it’s tough to pay someone for a year and not leave a paper trail.

Is it really worth it to have the fear of being caught always in the back of your mind? The IRS does not have a statue of limitations on how far back they can prosecute for tax evasion.

Why should I use this site over paying for a Nanny Tax company?

Off the top of my head…

  1. This site is easy to use and helps you with each step and all the paperwork you’ll need.
  2. This site does not charge $400 to $1,300 per year, which is what most Nanny Tax Payroll companies charge for something you can do yourself.

Why did you make this site?

For a few reasons. I have a nanny so I needed to research how to pay the nanny taxes. I realized how difficult it is find straight answers from someone that is not trying to sell you expensive payroll services. So I had all the content I need for the site. I enjoy building websites, and think this can really help people out. Learn more about the site here.

Still have a question? Ask it below. Frequently asked questions with answers will be added.