Thinking of hiring a nanny for your children? You better know what this entails for you. Finding a competent and caring nanny is only the beginning of the hiring process, as other matters must be considered. Not only are you automatically considered a household employer, but you might also be required to pay a nanny tax. This tax doesn’t just include nannies. Instead, other household workers also get included in this “Nanny Tax” definition such as:
- Full- and part-time nannies (live-in and live-out)
- Housekeepers
- Gardeners
- Elderly caregivers
- Seasonal and summer nannies
- Personal assistants
- Drivers
- After-school nannies
- Special caregivers for children with special needs, etc
What is Nanny Tax?
Nanny taxes can be defined as, “The employment taxes to be paid by the individuals who hire household workers like nannies, housekeepers, senior caregivers, and more such employees.”
In the United States, this tax applies if the household employers pay their employees more than the nanny tax threshold. It has been raised by $100 in 2022 to $2,400. Once this limit has been reached, employers and employees are obligated to remit multiple taxes to the Government. The earnings below this limit aren’t taxable under Social Security specifics.
What Makes your Nanny a Household Employee?
It can get tricky to decide whether your nanny comes in the household employee definition or not for taxation purposes. A particular government’s employer supplemental tax guides can clear the matter readily.
In the US, IRS (Internal Revenue System) guidelines are pretty straightforward about what makes a nanny a household employee. These state that a nanny will be considered an employee if you control what type of work your nanny does and how. Where you hired them or how you pay them has no effect.
In contrast, an individual will not be termed your employee if you hire them through an agency. Either the agency controls what work is to be done and how, or the worker decides what they do and how they do it. This clears up the concept here.
Nanny Tax Exceptions
There are some exceptions to paying a nanny tax, even if your nanny is an employee and not an independent contractor. These exist if your nanny is:
- Your spouse
- Your child who’s under the age of 21
- A minor under 18, unless the minor is not a student with this service as their primary occupation.
Best Nanny Tax Service
It can be a slippery slope to juggle all the balls simultaneously, like complying with wage, labor, and tax laws while avoiding costly penalties. So, suppose you’re not an accountant by profession. In that case, it may feel like a daunting task to estimate deductions and benefits produce all the correct tax documents to file them with the IRS (Internal Revenue Service).
Nowadays, all your worries are quickly taken care of by hiring a “Best Nanny Tax Service.” Some nanny tax services help you in just calculating your nanny taxes and are inexpensive comparatively, such as the Simple Nanny Payroll tax service. You, as an employer, just enter the hours, and everything gets calculated for you, but it doesn’t make payments on your behalf or file tax returns.
Some other services can even file your nanny taxes with the relevant authorities regularly and provide constant advice and suggestions. Such as GTM Nanny Payroll & Tax Services.
The choice of the Best Nanny tax services depends on you. What type of features and the level of involvement are you looking for in a tax service before hiring them? To avoid future misunderstandings, you should also clarify all the tax obligations to your to-be employed nanny or household employees beforehand. Some of the taxes that come under the title “Nanny Tax” include:
1. Nanny tax Withholding
If your nanny earns equal to the social security threshold, currently, $2400 in the US, or more per year, you are obligated to pay both Medicare and Social Security tax. These taxes are, on the whole, known as Federal Insurance Contribution Act (FICA) taxes. Usually, half of these taxes are paid by you as an employer, and the other half is withheld from employee wages. Still, you also can pay for both these portions yourself.
2. Nanny Unemployment Tax
Suppose you pay your nanny $1000 or more in any one quarter; you may be held responsible for Federal unemployment tax (FUTA). You should clear it with your nanny tax services to determine whether you need to pay FUTA or state unemployment tax or both are required.
3. Nanny Income Tax
In nanny’s income tax, state and local income tax may also apply; your tax service can check that out for you. Generally, you are not obligated to withhold tax from a nanny’s wages unless they request it and you agree to it. Suppose either you or your nanny decides to end your income tax withholding agreement. In that case, it must be done in writing.
Withholding income taxes regularly benefits your employee. Their income tax obligations are then distributed throughout the year rather than paying a lump sum at the end of the tax year. It can help document their employment history and ensure compliance with the law from you and your employee.
Best Payroll Service for Nanny
please click here for a list of the best payroll service for nanny
Did you know that it takes at least 60 hours each year for you to manage your nanny payroll and tax obligations, according to an IRS survey? Instead of figuring out nanny taxes or getting nanny payroll wrong with unintentional mistakes, you could optimize your efforts and time by hiring a Best Payroll Service for the nanny. Moreover, you can avoid the pitfalls of significant fines and penalties as an employer. It also benefits the household employees in the long run.
What to Consider when Choosing to Nanny Payroll Services?
When selecting a payroll service for the best experience, multiple factors should be considered.
- Services offered
The payroll service provider should offer features to reduce your paperwork and ensure compliance with state and federal tax laws. Furthermore, they should help you pay your nanny via check or direct deposit at no extra charge. This cuts the unnecessary costs.
- Online service:
Go for a payroll service provider that offers thorough online services. This allows you to create pay receipts, set reminders for payment deadlines, withhold Medicare and Social Security taxes, and pay your taxes.
- Customer support:
The critical factor is that 24/7 customer support should be available online to answer your questions when you need them most.
- Automatic payroll processing:
Automation reduces the time it takes to pay your nanny and may minimize errors in the modern world.
- Tax withholding
Depending on the type of service you choose, some Payroll providers calculate and withhold the correct amount of taxes from your nanny’s wages on your behalf and send it to government agencies.
- Employee self-service with mobile access
Your nannies or other household employees can view their pay information anytime.
How Much Does a Nanny Payroll Service Cost?
Generally speaking, the average nanny payroll services charge a setup fee of about $75 to $100, a monthly or quarterly subscription fee of about $40 to $80, and a year-end tax preparation fee ranging from $50 to $150.
It depends on your employer’s budget and how many services you wish to add to your Nanny Payroll services.
For instance:
If you have a large budget, say you hire a popular service named GTM. You will be required to pay a customs fee, but in return, they will even file all your tax and payroll documents for you with the relevant authorities after computing them as well. All your matters get nicely wrapped up here without much stress.
If you have a low budget or wish to file your documents yourself, you may opt for a nanny payroll service named Simple Nanny. Here, it only gives you an automatic tax and payroll calculation for your nanny, nothing extra but with just a minimum cost of $29 per year. You have to constantly keep yourself aware of the changes in tax or payroll regulations to file appropriately.
Parting Thought
Filing taxes as a nanny is essential because of its multiple benefits to the employer and a nanny. Such as;
- Verifiable legal Income
- A legal Employment History
- Unemployment Benefits
- Social Security and Medicare Benefits
- Workers’ Compensation
Choosing the proper Nanny tax and payroll service can streamline all the legal processes for employers and employees.