Are you wondering about the tax rules related to appointing household employees such as a nanny? In the USA, there are particular tax laws called ‘nanny tax’, which apply to the household workers exclusively. Below, we have discussed some significant rules set by the ‘nanny tax’ laws.
If a household employee of yours receives a yearly payment of over $1,700, federal taxes should be paid. As you will need to enter your EIN or employer identification number on the tax papers, you should apply for it immediately after appointing a household employee.
You will not be required to pay nanny tax, if you have your child as your employee; whoever, for that the child must be below 21 years of age. One will also not be entitled to pay nanny tax for having his or her spouse, parents or anyone below the age of 18 years (for instance students, who are not doing these jobs full time) as a household employee. You must keep all the records related to your household employee meticulously to avoid confusions in future.
For Medicare and Social security there is FICA tax. According to this tax law, both you and your household employee owe 7.65% (according to the rates set in 2010) of each of the released paychecks. If you are not withholding 7.65% from the wages of your household employee, this means you will end up paying FICA tax for both you and your employee. This rate might change every year, so keep on checking.
Besides following the tax rules discussed above, as an employer you must also follow the federal income tax law. The law states that the employer should withhold the amount for federal income tax only if the household employee asks him to do so. For that however, the employee will need to fill the W-4 form. If you are not withholding the tax amount, your employee will be liable to pay it.
