Employers should ask each nanny to fill out a W-4 form right away. If required to withhold, the employer will need to issue the nanny a W-2 by January 31st of the following year.For example, if a parent or guardian pays two nannies $2,000 each this summer, no withholding would be required for either nanny. The $2,600 compensation limit is per nanny.This is an important point, as it means that students who are part-time babysitters are generally exempt from withholding. If the nanny is under 18 and child care isn’t the nanny’s principal occupation, the employer is not required to withhold.If an employer initially makes withholdings and does not reach the $2,600 limit, the employer can always repay the nanny the taxes withheld from earlier checks.
If expecting to exceed the $2,600 limit, employers should begin withholdings from the outset to avoid the need to catch-up on withholdings from a later check. Withholdings should begin with the first paycheck.Employers are only required to withhold Federal and State income taxes if the nanny makes that request. Additionally, the employer must also pay a matching 7.65% portion of social security and Medicare taxes on the nanny’s compensation when it is time to pay the Nanny Taxes.
The taxes required to be withheld are the 6.2% social security tax and the 1.45% Medicare tax.
Employers are required to withhold social security and Medicare taxes if paying a nanny at least $2,600 during a calendar year, effective for tax year 2023. The tax requirements can create some additional work, but knowing the requirements at the outset can go a long way toward alleviating headaches once the summer fun has past and it’s once again time to file the tax returns. While in this post we’ve specifically addressed the situation of hiring a nanny, it is important to note that the “Nanny Tax” is potentially applicable to other household service providers as well – such as babysitters, gardeners, or maids – if they meet the same criteria detailed above.Ī summer Nanny can be a life saver for many families. Below are some key points applicable to families in that situation. Viewing the parent or guardian as an “employer” can help to clarify many of the requirements regarding taxes and record-keeping. For example, if the nanny is an employee of a company providing caregiving services, none of the details below come in to play. Most notably, the “Nanny Tax” is only applicable when the nanny is deemed to be an employee of the parent or guardian. The details can seem daunting, but a few key points can help to clarify a potentially complicated requirement. Although this is a common practice, what often isn’t fully understood are the tax implications that can arise when someone chooses this option for summer daycare. As the kids settle in to the first couple weeks of summer break, many parents have gone the route of hiring a nanny to supervise the kids while parents work over the summer.
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