If you pay your nanny or child care provider at least $2,700 in the 2024 calendar year, the IRS expects you to pay what’s known as the “nanny tax.” This year-round process is completed in four basic steps, and while many families choose to have HomePay do everything for them, it’s possible to do these items yourself.
- Complete the required setup paperwork
- Calculate payroll each pay period
- Send taxes to the IRS and state throughout the year
- Prepare year-end tax documents
Before you dive in, it’s a good idea to understand all these steps, so here’s a general idea of what you can expect to do if you choose to pay nanny taxes yourself:
1. Complete some initial paperwork
You can’t begin calculating payroll for your nanny without knowing how much in taxes to withhold. To do this, you’ll need your nanny to fill out Form W-4 and a state withholding form (if your state collects income taxes).
Because you are, technically, the employer of your nanny, you’ll also need to apply for a Federal Employer Identification Number (FEIN) with the IRS, as well as state tax identification numbers with the agencies that handle collection of state taxes. These tax IDs identify you as a household employer and are required for sending in tax returns. You should apply for you tax IDs once you’ve made the decision to hire a nanny.
2. Accurately calculate payroll each pay period
You’ll need to keep track of the hours your nanny works, apply their hourly rate and add any overtime pay to get to the gross (before taxes) amount. From there, you’ll need to withhold the correct amount of Social Security & Medicare taxes, income taxes and any other state or local taxes that may apply. After these deductions, you’ll know how much your nanny’s net, or take-home, pay will be.
See how much a nanny costs where you live.
You’ll also need to calculate how much in Social Security & Medicare taxes, unemployment insurance taxes and any other miscellaneous state taxes you have accumulated as a household employer. These household employment taxes will generally be about 10% of the gross wages paid to your nanny, but can vary depending on where you live.
3. Send tax payments and returns to the IRS and the state
Your state requires you to send in tax returns — generally on a quarterly basis — for unemployment insurance taxes and income taxes. You’ll need to keep track of when these returns are due and send the appropriate amount of taxes to the correct agency. Some states have a different filing schedule so check your state’s requirements for more details.
Additionally, it’s recommended to send in estimated tax payments to the IRS four times per year to account for the Social Security & Medicare taxes you’re withholding from your nanny and accumulating for yourself. Waiting until you file your personal income tax return in April can result in underpayment penalties.
4. Prepare your year-end tax documents
After the year ends, you’ll need to prepare several documents to wrap up your annual nanny tax requirements:
Form W-2 for your nanny, so they can file their personal income tax return.
W-2 Copy A and Form W-3 to be filed with the Social Security Administration.
A state Annual Reconciliation Form if your state requires it.
Schedule H for you to attach to your personal income tax return.
The IRS estimates this work will take the average family 50-55 hours per year to administer. If you’d like to have those hours back in your life and enjoy the peace of mind of having an expert handle it all for you, give HomePay a call. We’ve helped families with these requirements since 1992 and can make the process a breeze.
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