For families hiring a household employee, figuring out tax obligations and pay rates can be the most complicated parts of the process. That’s where a nanny tax calculator can be a valuable resource. Here are five helpful ways to use a nanny tax calculator.
1. Estimate Your Tax Obligation
When budgeting for a nanny, it helps to figure out your employer tax responsibility. This is money you’ll pay to state and federal governments on top of what you pay your nanny and any benefits you provide. You will owe Social Security and Medicare taxes and federal and state unemployment insurance taxes.
When using GTM’s nanny tax calculator, complete the employee and employer information on the “Gross v. Net” tab of the nanny tax calculator and click “Calculate What I’ve Entered.” The results page will show your employer taxes per pay period and for the calendar year as well as your total employer responsibility, which is your nanny’s wages plus your tax obligations.
The nanny tax calculator will also determine estimated tax savings from the Child & Dependent Care Tax Credit.
2. Calculate Your Employee’s Withholdings
Enter your nanny’s federal and state withholding statuses, federal allowances, and any relevant local tax jurisdiction. The calculator will show your employee’s tax obligation and take-home pay.
3. Determine Your Estimated Tax Savings from an FSA
Your employer-sponsored Flexible Spending Account (FSA) can be used to help pay your nanny’s wages and/or your employer tax responsibility. By entering additional information about your federal and state tax filings and your pre-tax FSA contribution, you’ll see your estimated tax savings when you file your personal return.
4. Convert Gross Pay to Net Pay
You’ll set your nanny’s wages based on gross –– or before-tax –– pay. However, your nanny may want to know what their net pay –– or take-home pay –– will be. Following the same steps under “Estimate Your Tax Obligation,” you can show your nanny their take-home pay for a pay period and calendar year.
5. Translate a Salary to Hourly and Overtime Rates
When determining how much you want to pay a nanny, you may have come up with a weekly amount. However, nannies are required by law to be paid hourly and not a salary. They also receive at least time-and-a-half for overtime, which is typically hours worked over 40 in a week. There may be some exceptions around live-in employees and companionship care.
On the nanny tax calculator, click the “Salary v. Overtime” tab. Enter the hours your nanny will work each week and their weekly gross salary. The results page will break down your nanny’s weekly gross pay into a standard rate for the first 40 weekly hours and, if applicable, an overtime rate for any hours over 40.
Need Additional Assistance? GTM Can Help.
As you can see, a nanny tax calculator can be a powerful tool for you and your nanny to determine wages, tax obligations, and tax savings. But you may have questions about household employment that go beyond tax and pay calculations. Feel free to call us at (800) 929-9213 and we’ll answer your questions and review your hiring situation at no charge and with no obligation.
* GTM’s nanny tax calculator is provided as a means for obtaining an estimate of tax liabilities but should not be used as a replacement for formal calculations and does not constitute the provision of tax or legal advice. The user assumes all responsibility and liability for its use.