Employing a nanny, housekeeper, or gardener to work for you presents you with a unique problem. You are not a business employer and thus cannot deduct the wages, but your employee is earning taxable wages from you. Therefore, you may be required to report these payments to the government and to your employee.
Doing this correctly rather than paying “under the table” is essential. The reasons are:
- Doctors and HIPs (High Income Professionals) are more likely to hire household help and also to be audited than are average wage earners.
- If the relationship sours, your hire may seek retribution by reporting you to the IRS
- If you let your help go, (s)he may apply for unemployment benefits – which will alert the authorities.
- States share information with the feds. If the state learns that you are paying under the table and audits you, the IRS will be hot on their heels.
- If you are audited, the authorities will almost certainly look at prior years.
- You will be on state and IRS radar going forward.
Do you really want your financial security held hostage by your cleaning woman? I didn’t think so.
Workers that the Nanny Tax applies to are:
- House cleaning workers,
- Domestic workers,
- Health aides,
- Private nurses, and
- Yard workers/gardeners.
You are required to report your household employee wages IF YOU:
- Pay cash wages of $2,000 or more in 2016 to any one household employee or
- Pay total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees.
- Are required to pay SUTA (State Unemployment Taxes) and/or workmen’s compensation insurance.
In the first instance, you are required to pay FICA taxes at 15.3% on the employee’s wages. In the second situation, you are required to pay FUTA (Federal Unemployment Taxes) of 6% of the first $7,000 paid to your employee. You will need to check with the state where the employee does work for you to determine if you are required to pay SUTA and/or workmen’s comp.
Do you have questions about the Nanny Tax? Leave them below and get the answers!