How to take care of the Nanny Tax
Author: Chintamani
If you had someone in your home babysitting your child who was not your spouse, your child under twenty-one years of age, your parent, or a minor child and you paid that person $1700 or more, you owe the Nanny Tax. The Nanny Tax is simply the FICA and FUTA taxes required to be paid to the Internal Revenue Service by employers. In addition to these taxes, you will most likely owe state unemployment and compensation taxes for employing this sort of domestic worker. FICA is the largest tax, coming in at $15.3%, and you and your nanny worker each owe half of it, unless you pay the nanny in cash and do not withhold her half share. In this event, you are liable for all of the FICA tax. FUTA or the Federal Unemployment tax is owed on the first $7000 of the nannys wages, as long as the nanny earns at least $1000 per quarter. The FUTA tax is only 0.8%, as long as you pay your state unemployment tax on time. In the event that you do not pay your state unemployment tax when it is due, FUTA rises to 6.2% of the nannys wages. Federal Income Tax withholding is only done at the nannys request for a W-4 form, and seldom is done for domestic employees in this situation. FICA and FUTA taxes on nannys wages are part of your personal income tax return. These taxes are reported and calculated on a Schedule H form attached to your income tax return. The derived sum is transferred from Schedule H to the proper line on your 1040 return and paid as part of your personal tax liability. Remember that when calculating nanny wages, you will need to add the 7.65% that you don not withhold to the nanny annual wages to determine the correct taxable amount. If your taxes are underpaid because you did not properly calculate the nanny tax, the IRS will charge you interest until you ante up. You may want to make quarterly estimated tax payments on your FICA and FUTA in order to avoid such a situation. Also be aware that you need to file a tax identification number and issue a W-2 form to your nanny and file one copy with the IRS. If you have employees working in your home for whom you are required to file Household Employment Taxes, you might want to enlist the services of a tax attorney or CPA to help you determine when and what you need to pay the IRS in order to comply with tax requirements regarding domestic employees.About the Author:
Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. His famous
Tax eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax. Just visit his website
http://www.planningyourtax.com/ and claim your FREE eBook.
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