If you use a nanny to attend to your children while you're not at home, you may be responsible for a nanny payroll tax. State’s and Federal all require that you withhold taxes for nannies in certain situations. Generally speaking, if you pay a Nanny more than $1600 in any calendar year, you're required to withhold payroll taxes as well as make matching Social Security and Medicare contributions. You may also be required to pay unemployment insurance for your Nanny as well. So, here are some steps to help you properly file and pay your Nanny Payroll taxes.
Obtain a Federal Employer Identification Number
If you use a baby sitter babysitter or nanny on a regular basis, you are in fact an employer. Therefore, you will need to obtain a federal employment identification employer identification number from the Internal Revenue Service (IRS). Although getting an employer identification number from the IRS used to take several weeks or months, you can now apply for it online and may receive it instantly. In order to apply, visit the biz of the IRS employer identification number application page.
Get Information about Payroll Tax Withholding
Visit the IRS website and download publication 926 - Employers Guide and IRS Publication 15 – Circular E which is the employers guide to withholding federal payroll taxes. Both of these are great sources of information about the types of taxes that will need to be withheld as well as when you're required to withhold them, report them and make tax deposits in order to meet your withholding obligations.
Download Free Payroll Tax Forms
You can use the Internet to search for free payroll tax forms. You'll need to find and download forms W-2 and W-4 as well as other tax forms that are mentioned
in IRS publication 926 and Publication 15 Circular E. For common IRS forms, you can simply and visit the IRS website’s download section to choose the form you need to use. You will need to have your Nanny fill out the IRS Form W-4 so that you can properly calculate the amount of withholding tax to be withheld.
Calculate Payroll Tax Rates
Use the tables listed in IRS Publication 15 – Circular E to calculate your nanny’s federal withholding tax rate based on the number of deductions on form W-4 and the amount of your nanny’s wage or salary. In addition to federal withholding tax, you will need to calculate the following:
Social Security - Calculate the amount of Social Security to be withheld by multiplying your nanny’s gross salary times 6.2%
Medicare - Calculate Medicare by multiplying your nanny’s gross salary times 1.45%
FUTA - If you pay your state’s required employment taxes, the rate is generally only 0.8%. However, if you fail to make state unemployment insurance payments for your Nanny, the rate jumps to 6.2%.
State Tax Considerations
In order to find out what types of payroll taxes are required from the state you live in, you should visit your State's Department of Revenue website and review the information there. You will need to search for minimum income levels that trigger employer payments for unemployment insurance as well as state withholding tax rates.
Once you have all of the rate information, you can calculate the amount of your nanny’s withholding taxes for both state and federal taxes. Then send your payment by check to the IRS address listed in IRS Publication 15 – Circular E or to the State Department of Revenue address listed on their website.