Nanny Tax Changes for 2014

If you have at least one household employee that you will pay more than $1,900 during 2014 (changed from $1,800 in 2013), you may be required to pay federal and state employment taxes. There are a few changes and updates to tax laws that may affect you.

Social security and Medicare tax for 2014: The social security tax rate remains the same as in 2013, 6.2% each for the employee and employer. The social security wage base limit is now $117,000.The Medicare tax rate is also the same as in 2013, 1.45% each for the employee and employer, with no wage base limit.

Qualified parking exclusion and commuter transportation benefit: For 2014,  employees may exclude $245 per month in transit benefits and $245 per month in parking benefits – up to a maximum of $490 per month. Employees may also exclude $130 per month for commuter highway vehicle transportation and transit passes.  Employees may receive benefits for both parking and commuter transportation and transit passes during the same month.

Additional Medicare Tax withholding: As a household employer, you are required to withhold Medicare tax at 1.45%.  If you pay an employee more than $200,000 in a calendar year, you must also withhold a 0.9% Additional Medicare Tax from wages. The Additional Medicare Tax takes effect during the pay period in which you pay your employee more than $200,000 and continue to withhold it each pay period until the end of the calendar year. This additional tax is required to be withheld only from the employee; employers are not required to share this tax.

Credit reduction states:  The Department of Labor defines a “credit reduction state” as a state that has not repaid money it borrowed from the federal government to pay unemployment benefits. For household employers that paid employment taxes in one of these states, you will see a reduction in your federal unemployment (FUTA) tax credit. Check to see if your state is affected by this credit reduction.

For more information, please reference the Household Employer’s Tax Guide from the IRS, or contact the Household Employment Experts at GTM.