To pay social security taxes and properly report your nanny's income, you need to follow several steps as outlined by the IRS guidelines for household employers. Here is a comprehensive guide:
- Determine if Your Nanny is a Household Employee:
- Nannies are generally considered household employees if they work in your home and you control what work is done and how it is done. This means you are responsible for withholding and paying employment taxes.
- Obtain an Employer Identification Number (EIN):
- As a household employer, you need an EIN. You can apply for an EIN using Form SS-4.
- Withhold and Pay Social Security and Medicare Taxes:
- If you pay your nanny $2,300 or more in cash wages in a calendar year, you must withhold social security and Medicare taxes. The combined tax rate is 15.3% of cash wages, with 7.65% being the employer's share and 7.65% being the employee's share.
- You can either withhold your nanny's share from her wages or pay it from your own funds. If you choose to pay her share, you must include that amount as additional wages on her Form W-2.
- Federal Unemployment Tax (FUTA):
- If you pay $1,000 or more in any calendar quarter to household employees, you must also pay FUTA tax. This tax is paid by the employer only and is not withheld from the employee's wages.
- Income Tax Withholding:
- You are not required to withhold federal income tax from your nanny's wages unless you and your nanny agree to do so. If you agree, have your nanny complete Form W-4.
- File Required Forms:
- Schedule H (Form 1040): Use this form to report household employment taxes, including social security, Medicare, and FUTA taxes. This form is filed with your federal income tax return.
- Form W-2: You must file Form W-2 for each household employee to whom you paid $2,300 or more in cash wages. Provide a copy to your nanny and file a copy with the Social Security Administration.
- Form W-3: This form is used to transmit Form W-2 to the Social Security Administration.
- Record Keeping:
- Keep records of each employee's name, address, and Social Security Number (SSN).
- Record the dates and amounts of cash and noncash wage payments, any social security and Medicare taxes withheld or paid, and any federal income tax withheld.
- Payment of Taxes:
- You can pay the employment taxes when you file Schedule H with your federal income tax return. Most filers must pay by April 15, 2024.
By following these steps, you will ensure that you are compliant with IRS requirements for paying social security taxes and properly reporting your nanny's income.
Sources:
Publication 926 (2024)
Publication 17 (2023)
2023 Instructions for Schedule H (2023)
Who's Minding the ‘Nanny Tax’?
Instructions for Form SS-4 (12/2023)
