What is the Best Way to Pay Nanny Taxes

Jun 9, 2023 | GTM Blog, Household Payroll & Taxes, Tax & Wage Laws

You have a few options to pay your nanny taxes. While the main point is to actually remit the proper amounts, some methods may be more advantageous for you to avoid underpayment tax penalties. Here is the best way to pay your nanny taxes.

We often emphasize why you should pay your nanny taxes and be compliant with household employment tax, wage, and labor laws. But how do you pay nanny taxes?

You have a few options to pay your nanny taxes. While the main point is to actually remit the proper amounts, some methods may be more advantageous for you.

Here are the ways to pay your nanny taxes.

1. Remit estimated taxes quarterly

As you collect the withholdings from your employee’s pay and set aside your employer taxes, you can remit these to the IRS on a quarterly basis using Form 1040-ES Estimated Tax for Individuals.

This is the preferred way to pay your nanny taxes as it keeps you current on your obligation. Remember household employment taxes are calculated with your personal tax responsibilities with Schedule H attached to your tax return.

In fact, the IRS calls out household employers in the instructions for Form 1040-ES.

Household employers. When estimating the tax on your 2023 tax return, include your household employment taxes if either of the following applies.
You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income.
You would be required to make estimated tax payments to avoid a penalty even if you didn’t include household employment taxes when figuring your estimated tax.

Below are the quarterly tax payment due dates during a tax year. Some due dates may vary year-to-year if they fall on a holiday or weekend. Estimated tax payments are typically due two weeks after a payment period ends. Note that the second payment period is only two months while the fourth payment period is four months.

PAYMENT PERIOD	DUE DATE
January 1 – March 31	April 15
April 1 – May 31	June 15
June 1 – August 31	September 15
September 1 – December 31	January 15 (of the following year)

You don’t have to make the payment due in January, if you file your tax return by January 31 and pay the entire balance due with your return.

The IRS provides a few ways to make your quarterly tax payments including by bank account, credit or debit card, or by mail.

For clients of GTM Payroll Services, household employment taxes are remitted quarterly. You can view these payments on your client dashboard and either have us create your Schedule H as part of our year-end package or provide these payment amounts to your accountant when preparing Schedule H with your tax return.

2. Increase your tax withholding

If you have a good idea of your nanny tax responsibility for the year, you can increase the tax withholdings from your job by filing a new W-4 form that includes an additional withholding amount.

There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.

With this method, you’ll plan to have enough withheld from your pay to cover not only your personal tax responsibility but your household employment taxes as well. That way you may not owe taxes – or owe very little – in order to avoid underpayment penalties.

The IRS imposes a tax penalty when you don’t pay enough of your total estimated tax and withholding due.

You can use GTM’s nanny tax calculator to figure out what you will owe in household employment taxes and then determine how much additional money you would like withheld from your pay to cover this tax responsibility.

3. Pay your nanny taxes when filing your personal return

While it’s not recommended, you can also pay your entire nanny tax obligation from the tax year when you file your personal return.

However, waiting until you file your personal tax return to pay your nanny taxes could reduce your expected tax return. Or you may wind up owing taxes and possibly be subjected to a penalty and interest for underpaying your taxes during the year.

Typically, the underpayment penalty is 5% of the underpaid amount. Underpaid taxes also accrue interest at a rate that the IRS sets annually.

GTM can help

Of course, the easiest way to pay your nanny taxes is to let GTM Payroll handle it for you. We’ll automatically withhold your employee’s taxes from their wages, pay them by direct deposit, and set aside your employer taxes from your payroll account. We’ll remit your taxes on a quarterly basis. That makes payday and tax time a breeze for you and your employee. Want to learn more? Have questions? Call us at (800) 929-9213 for a complimentary, no-obligation consultation with a household employment expert. Or sign up online if you’re ready to get started.