How to Pay Nanny Taxes Yourself

Jul 18, 2024 | GTM Blog, Hiring an Employee, Household Payroll & Taxes

When you hire someone to work in your home, you become an employer. And with that designation comes employment tax responsibilities, commonly called “nanny taxes.” So, how do you pay nanny taxes and make sure everything is correct? There are a few ways to tackle this, including doing it yourself. If you’re ready to take this on, here are seven steps to paying nanny taxes yourself.

When you hire someone to work in your home – like a nanny, housekeeper, or senior caregiver – or join a nanny share, you become an employer. And with that designation comes employment tax responsibilities, commonly called “nanny taxes.”

You’ll want to get this part of household employment right, as mistakes – even unintentional ones – can be costly. Paying “off the books” and skipping your nanny tax obligations completely is even worse.

So, how do you pay nanny taxes and ensure everything is correct? There are a few ways to do it, including paying nanny taxes yourself.

What are nanny taxes?

Nanny taxes include Social Security and Medicare (FICA) and federal and state unemployment.

In some states, the family and/or employee may need to contribute to a paid leave program.

While not considered a tax, workers’ compensation coverage and/or disability insurance may also be a household employer requirement in your state.

Most families pay about 9-12% of their nanny’s wages in employment taxes. There are ways to reduce – and even eliminate – your nanny tax responsibilities through tax savings programs and credits.

Paying nanny taxes using a payroll service

Signing up with a nanny payroll service is the easiest way to pay your nanny and remit your employment taxes. Not every payroll service is the same, so you’ll want to find one that is the best fit for your needs. Essentially, you’ll input your nanny’s wages, and the service will calculate how much to pay your employee and what to withhold in taxes. More comprehensive services will take care of sending a check to your nanny or paying them by direct deposit and holding on to your employer as well as employee taxes to remit to the IRS and state tax agency every quarter.

Paying nanny taxes using an accountant

Some families rely on their accountants to handle their nanny taxes. If your accountant knows the ins and outs of household employment, this could be a good way to go. However, accountants may not be familiar with paying nanny taxes because they may not have many clients with household employees. Or they don’t know the nuances of household employment – especially on the labor side – that can land a family in trouble. Accountants may not want to deal with nanny taxes and focus their time on more profitable work. Many firms refer their clients to, or partner with, a nanny payroll firm to provide this service.

Paying nanny taxes yourself

With some time and effort, you can pay nanny taxes yourself. The IRS estimates that it will take a family about 60 hours a year to manage nanny payroll and taxes on their own. That may only consider taxes and wages, not household employment labor laws such as domestic worker protections.

If you’re ready to take this on, here are seven steps to paying nanny taxes yourself.

1. Obtain employer tax ids

Since you’re now an employer, you need your tax IDs.

You can apply online for your Federal Employer Identification Number (EIN) on the IRS website. It only takes a few minutes.

For your state ID, visit your state’s tax agency website for information on how to apply.

2. File a new hire report

All employers – including families with household help – must file a new hire report with their state. You’ll need to provide basic information about your employee, including name, address, Social Security number, and hire date. And your name, address, and EIN from the IRS. You may be able to complete a new hire report online with your state’s tax agency.

Federal law requires employers to file a new hire report within 20 days of hire, although some states require it sooner. The information is maintained in the National Directory of New Hires, which child support agencies use to locate a parent who owes child support and issue an income withholding order. It’s also used to help prevent workers’ compensation and unemployment fraud and reduce the cases of public assistance going to the wrong people.

3. Calculate employee withholdings and employer taxes

Now that you’re set up as an employer and your worker is on the job, the next step is to pay them properly and withhold the right amount of taxes.

You can do this with the help of a nanny tax calculator. With a nanny tax calculator, you can:

Estimate your employer tax responsibility
Determine how much to withhold from your nanny’s pay for their share of taxes
See how much you can save through a Dependent Care FSA and/or the Child and Dependent Care Tax Credit

As mentioned, nanny taxes fall into two main buckets for employers: FICA and unemployment.

FICA

A household employer is responsible for remitting 7.65% of their worker’s gross wages in FICA taxes. This breaks down to 6.2% for Social Security and 1.45% for Medicare.

Simply multiply your nanny’s gross wages by 7.65% to get your FICA tax responsibility.

For example, if your nanny grosses $800/week, your FICA tax for that pay period will be $61.20.

As a household employer, you must also withhold your nanny’s share of FICA taxes from their pay. They owe the same percentage (7.65%) of their gross wages.

Federal unemployment

Federal unemployment taxes – or FUTA – is 6% of your nanny’s first $7,000 in gross wages for a maximum obligation of $420.

If you live in a credit reduction state, your tax rate may be 0.6%, reducing your responsibility to $42.

State unemployment

Household employers will also owe state unemployment taxes (SUI). These rates vary by state and can be up to four percent of your nanny’s gross wages up to your state’s wage base.

For example, in Connecticut, a new household employer pays 2.8 percent on the first $25,000 of their nanny’s gross wages for a maximum of $700. Your SUI rate and the state’s wage base may vary from year to year, and experienced employers sometimes pay a lower rate than new employers.

Your state will inform you of your SUI rate on an annual basis.

Check out your state’s unemployment tax rate and wage base.

Income tax

While it’s not required for a household employer to do so, you can also withhold your nanny’s income taxes based on their Form W-4. This is recommended so your employee doesn’t owe their entire income tax obligation when they file their personal tax return.

Other withholdings

In some states, you may be required to withhold for disability insurance and/or paid leave programs. Your nanny will also owe unemployment taxes in three states (Alaska, Pennsylvania, and New Jersey), which must be withheld from their pay. Check your state’s nanny tax guide for additional information.

4. Prepare and distribute pay stubs

On payday, you’ll provide your nanny with their net wages for the pay period. Net pay is often referred to as “take-home” pay. This is what your nanny takes home after all withholdings and deductions have been made. You’ll also give them their pay stub, detailing the hours they worked at their regular and overtime rates and how much was deducted from their pay for each required withholding (i.e., FICA, income taxes, paid leave programs, disability insurance, etc.).

Some states and cities with domestic worker bills of rights may dictate that your employee is paid weekly and receive additional details on their pay stub, such as their paid-time-off balances.

5. File and remit quarterly employment taxes

When you receive your state tax ID, the tax agency will likely provide a method and schedule for you to remit your unemployment taxes and any employee income taxes (if applicable). Most likely, taxes will need to be remitted every quarter.

For your federal taxes (FICA, unemployment, and employee income), use Form 1040-ES to remit those every quarter.

The typical schedule is:

Payment period	Due date
Jan 1 – Mar 31	Apr 15
Apr 1 – May 31	Jun 15
Jun 1- Aug 31	Sep 15
Sep 1 – Dec 31	Jan 15 of the following year

Due days may vary depending on if they fall on a holiday or weekend.

Your alternative to quarterly tax filings is to withhold more taxes from your own pay to cover your nanny taxes when you file your personal tax return.

You should do one or the other. If your nanny tax obligation is large enough, you may wind up owing taxes when you file and possibly be subjected to an estimated tax penalty and interest for underpaying taxes during the year.

6. Prepare and distribute Forms W-2 and Form W-3

By January 31, you should provide your employee with their Form W-2.

Here’s how to prepare a Form W-2 for your employee.

Also, file Form W-3 and a copy of your employee’s Form W-2 with the Social Security Administration by January 31.

7. Complete Schedule H and file with your federal tax return

Schedule H is where you report household employment taxes to the IRS and is filed with your personal tax return.

Here’s everything you need to know about filing Schedule H.

Monitor nanny tax and household employment labor laws

Those seven steps will take you through the basics of managing nanny taxes on your own. However, tax, wage, and labor laws frequently change, and household employers must monitor updates to ensure compliance. Minimum wage rates increase. Domestic worker protections are added. Paid leave programs are introduced.

GTM can help

If you’d like to skip the hassles of managing nanny taxes on your own and avoid the risks of making mistakes, then give GTM a call. We can take care of paying your nanny, filing and remitting taxes, and year-end forms. Get a complimentary, no-obligation consultation with a household employment expert at (800) 929-9213. We’ll answer any questions about hiring and employing someone in your home and discuss your household employer responsibilities. Or schedule time with us at your convenience.