It’s that time of year again and it may not be so wonderful if you haven’t kept up with your nanny tax obligations. So grab a mug of eggnog and play some Andy Williams. We’ll help you get through your year-end nanny taxes and other administrative tasks and maybe get you back on Santa’s nice list.
1. Determine if you owe nanny taxes
We’ll start with a basic question. Do you need to pay nanny taxes?
If you’ve hired a nanny, in-home senior caregiver, housekeeper or some other employee to work in your home AND paid them $2,100 or more during 2018, then you must pay FICA taxes, which is your contribution to Social Security and Medicare. This is commonly referred to as nanny taxes.
Don’t count wages paid to your spouse, a child under 21, or any employee under the age of 18.
If you paid an employee $1,000 or more in any calendar quarter, you’re liable for federal and state unemployment taxes as well.
2. Confirm employee information
You’ll provide your employee with a W-2 in January so best take care of this now. Make sure you have their correct legal name, Social Security number, and address.
3. Review hours worked
Review your employee’s timesheets to make sure all hours they worked have been paid. Household employees are to be paid at least minimum wage, which will be the highest of the federal, state, or local rate. And they receive time-and-a-half for hours worked over 40 in a week. If you’ve kept accurate records throughout the year or used an automated time-keeping solution, this should be an easy step to complete. If not, better pour another mug of eggnog. You’ll want to get this right to avoid compliance headaches and possible legal action down the road.
4. Calculate employee tax withholding
Figure out how much your employee has already paid in taxes. Hopefully, you’ve withheld taxes from their wages each pay period. This will lessen their tax responsibility when they file their personal tax return. Otherwise, they will need to pay their entire obligation when they file. That can turn out to be a burden for some employees if they haven’t budgeted to pay hundreds or thousands of dollars in taxes.
Your employee owes 7.65 percent in FICA taxes. This breaks down to 6.2 percent for Social Security and 1.45 percent for Medicare.
They will also owe federal and state (if applicable) income taxes. It’s not required for you to withhold income taxes but, again, it’s helpful to your employee to have a regular amount taken out of their pay throughout the year rather than face a large sum when they file their personal return. If you and your employee agree to withhold income taxes, have them complete Form W-4.
5. Calculate your tax obligation
As mentioned, you also owe Social Security and Medicare taxes at the same percentages as your employee (7.65 percent total). Your federal unemployment tax responsibility is six percent on the first $7,000 of gross wages. You may also owe state unemployment taxes, which typically range from two to five percent of a set amount of wages. This entire tax amount will be due when you file your personal return unless you’ve been paying quarterly estimated taxes with Form 1040-ES.
6. Complete and submit wage and tax forms
Complete Form W-2 (Wage and Tax Statement) and Form W-3 (Transmittal of Wage and Tax Statements). Form W-2 must be supplied to your employee by January 31. Send or electronically file Copy A of Form W-2 and Form W-3 to the Social Security Administration by January 31.
7. Complete Schedule H and Form 2441
You’ll need to attach Schedule H (Household Employment Taxes) with your personal tax return whether you file at the tax deadline (April 15, 2019) or receive an extension to file. Schedule H is an annual reconciliation form that is used to report wages paid to your employee throughout the year.
You may be eligible to take a tax credit for child care expenses such as your nanny’s pay using Form 2441 (Child and Dependent Care Expenses).
GTM can help
Figuring out year-end nanny taxes can be confusing and time-consuming especially when you’d rather be spending time with your family creating holiday memories. GTM Payroll Services can automate tax withholding and remittance for you and your employee. We’ll even complete the year-end forms like W-2, W-3 and Schedule H. It really can be that easy. Call (800) 929-9213 for a free, no-obligation consultation with a household employment expert.
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