Do I Need to Deduct Taxes for My Nanny?
Good quality child care for your children is something all parents strive for. For many parents, hiring a nanny is the path they choose to get the quality childcare they are looking for. But, the financial implications of hiring a household employee can be complicated! One of the most common questions folks that have a nanny ask is “do I need to deduct taxes for my nanny?” We’ll answer that question and many more in this article!
What is a Household Employee?
Before we jump into the question of “do I need to deduct taxes for my nanny,” we need to understand what a household employee is. Let’s get the definition straight from the IRS’ website: Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee. Repairmen, plumbers, contractors, and other business people who provide their services as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but also how they do it.
So, you can see that a nanny definitely falls into the category of a household employee. Why is this distinction important? Taxes of course!
The IRS Always Wants Their Cut!
The IRS tells us that any household employee which receives cash wages of $2,000 or more needs to have 6.2% withheld for social security and 1.45% withheld for medicare taxes (total of 7.65%). This amount needs to be deducted from the cash you pay them. Don’t forget – you’ll also have to pay 7.65% to match their half and send all that (15.3% total) to our friendly IRS annually.
If that doesn’t sound complicated enough, there are all kinds of further exceptions from there. And… don’t forget about state taxes as well. Also, your household employee may or may not want you to withhold federal income tax from their pay. ARGHH!
Is There a Simple Solution?
If this all sounds like a complicated nightmare of tax intricacies, you’re right – it is. Thankfully, there are solutions out there to help pay your nanny (or other household employee) and deduct the proper amount of taxes for you. Who wants to spend time worrying about all these deductions and stress about making a potential mistake?
One of the best and most cost effective solutions I’ve run across is NannyPay. NannyPay is secure and cost-effective desktop payroll management software for calculating taxes for your nanny, babysitter, housekeeper, assistant or any household employee.
The great thing about NannyPay is that it is less than 20% of the cost of a lot of other payroll services. They have different packages to match the number of household employees you have working for you. Their cheapest package if only $150 for 1-3 employees. Check the coupon below to save $25 off your first year (for new customers)! They also offer a 30-day money back guarantee if you’re not satisfied, so you have no risk in giving it a try.
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Keep Things Simple for Yourself
If you employ a nanny, babysitter, housekeeper, gardener, maid, etc., then you need to take action. If you pay them $2,000 or more a year, you are REQUIRED to withhold and pay employment taxes to the IRS. Keep yourself out of trouble and ensure you are following the rules :-). One of the easiest ways to ensure you are compliant and keep yourself off the naughty list is to use software like NannyPay to take the hassle out of household employee payroll.
