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The National Insurance Contributions Act (NICA) of 2018 imposes a 10% tax on the gross earnings from salaries and wages received by individuals in Ireland. The Nanny Tax will apply to all Irish residents paying or receiving salary or wages for work outside of Ireland, including those not resident in any other country as well as employees who move abroad with their employer.
The “nanny tax calculator” is a tool that will help you figure out how much you will owe in taxes for your nanny. The amount of money that you pay in taxes is based on the number of children, their ages and the state where you live.
Nanny taxes are a mix of federal and state taxes that households must withhold when employing family members to work in their home. Employees such as nannies, gardeners, housekeepers, personal assistants, and even chefs fall into this category.
These taxes, which include Social Security and Medicare taxes (FICA), as well as federal and state income taxes and unemployment taxes, are needed anytime a household employee is paid more than $2,400 in a year. You’re also liable for a percentage that comes from your own finances as an employer.
We’ll go through the various taxes imposed on home staff and how they’re paid.
What Is Covered by Nanny Taxes?
The many taxes you may be due for, as well as how to calculate them, are listed here. We’ll go through the many types of forms you’ll need to complete and file later in this post.
If you pay your employee more than $2,400 in a year, you must pay Social Security and Medicare taxes on the first $147,000 you pay them. The Social Security payroll tax is 6.2 percent, while Medicare payroll tax is 1.45 percent. You must pay an extra 0.9 percent in Medicare taxes if you pay an employee more than $200,000 per year.
Wages paid via cash, cheque, money order, or direct transfer are referred to as cash wages. Food, transportation (such as bus tickets or a toll pass), clothes, and other items are not included. If you offer your employee money to pay for any of these, however, it is considered cash wages.
The amount of Social Security and Medicare taxes that your employee is accountable for is the same. Some companies pay the employee’s share out of their own pocket. If you do, the IRS will evaluate such sums as if they were paid in cash to the employee and will consider them for income tax reasons. So, if you pay your employee $600 in compensation but also pay them Social Security ($37.20) and Medicare ($8.70), the IRS will tax them on $645.90 rather than $600.
The IRS anticipates collecting the entire 15.3% of Social Security and Medicare taxes. That is yours and your employee’s share. It’s up to you whether you pay it entirely yourself or withhold half of the employee’s income.
Unless your employee wants it and you agree, you are not obligated to withhold federal income taxes. The tax tables in IRS Pub. 15-T inform you how much to withhold. Before deducting any amounts for any withholding taxes, you must calculate taxes on all taxable earnings. Based on the information on your employee’s Form W-4, deduct federal income tax from each paycheck.
Non-cash earnings, such as bus tickets and supplies, may be subject to taxation. For further information, see IRS Publication 525.
You should check with your state to see what withholding obligations they have.
If your employee earns less than $51,464 (or $57,414 if married filing jointly), they may be eligible for earned income credit, which may lower their taxes or provide them with a government reimbursement. If you agree to withhold taxes, you must inform your employee of the EIC even if the tax withholding table indicates that you do not need to withhold any. For further information, see IRS Publication 926.
Unless you pay state unemployment insurance, the Federal Unemployment Levy Act (FUTA) tax is 6% of your employee’s salary (see below). If you paid a total of more than $1,000 to all workers in a quarter, you must pay this. For example, if you paid $600, $100, and $700 to three different workers, you owe FUTA taxes. You must pay FUTA tax on up to $7,000 per person.
You will get a reduction on your FUTA if your state requires you to pay state unemployment taxes (usually 5.4 percent ). Visit the US Department of Labor’s website to see whether your state needs you to pay unemployment taxes. The $1,000 minimum applies to the following quarters: January to March, April to June, July to September, and October to December.
You don’t have to pay FUTA taxes unless you owe more than $500; if you owe less, you may skip that quarter. If you plan to pay more than $500 in a year, though, it’s ideal to pay quarterly.
Nanny taxes are relatively simple, but they do need meticulous attention to detail and adherence to deadlines. We suggest SurePayroll if you’d prefer have a payroll provider handle everything for you. It allows you to pay your staff in a variety of ways, with limitless pay runs and tax filing. It simplifies nanny payroll management and is less expensive than many of the nanny-specific programs available. Get two months of payroll services for free when you sign up now.
Pay a visit to SurePayroll.
Contractors vs. Household Employees
Nanny taxes are exclusively paid on home employee salary, not contractor payments. A “household” employee is someone who earns more than $2,400 from you in a year by working in your home. Maids and housekeepers, gardeners, eldercare, caregivers, and drivers are just a few examples. The basic rule is that if you decide on the work schedule, what will be done, and how it will be done, the domestic worker is considered an employee. Check out IRS Publication 926 for additional information on the regulations.
Contractors are persons you employ on their own for a specific task or for specialized work, and they normally furnish their own supplies and have control over their own hours. (For instance, hiring someone to clean your gutters or trim your trees.) If you pay them more than $2,600 in a year and they are not a company, you may need to submit a Form 1099 for them (instead of having to worry about nanny taxes).
Nanny Taxes Do Not Apply to Household Employees
However, not every domestic worker is regarded as an employee. If you pay the following, you won’t have to pay nanny taxes:
- If you have children under the age of 21, they are your responsibility.
- However, there is one exception to this rule: your parents. If you are a single parent and your kid has a mental or physical handicap that precludes self-care for at least four weeks in a three-month period, and you are unable to care for your child personally for at least four weeks in a three-month period, you are deemed an employee.
- Unless this is their main source of income for the year, minors.
- If you employ someone via an agency, the agency will compensate you. The agency is in charge of taxes, or should be. (To prevent responsibility, double-check this.)
- If you leave your kid with a sitter for day care or child care.
- They are independent contractors if they decide when and how they work and bring their own equipment, as is the case with lawncare or landscaping staff. They may be deemed workers if they work on a defined schedule, such as Fridays from 2 to 4 p.m. and utilize your equipment.
It may be tempting to pay your domestic personnel “under the table” to avoid tax concerns and the hassle of determining whether they are employees or contractors. This is, however, a terrible idea since it puts you at risk of paying penalties and being out of compliance if you are detected. It also deprives your workers of benefits to which they are entitled (Medicare benefits, unemployment, etc.).
When Should Nanny Taxes Be Paid?
For depositing Social Security and Medicare, as well as withholding federal income taxes, there are two deposit schedules: monthly and semiweekly. The schedule you employ is chosen by looking back at the prior year and how much you paid. Check out IRS Publication 15 for additional details.
You must submit FUTA taxes for any quarter in which you pay your workers more than $1,000 in total earnings. You may only have to pay at the end of the year if this is the case.
Note: The IRS requires you to keep track of your employee tax deposits. In most circumstances, unlike income taxes, you will not be able to pay it at the end of the year. Schedules may be found in IRS Publication 15. Deadlines are also included in the section on forms below.
If doing your own payroll seems too difficult, or if you have numerous home workers, you may want to look into payroll software or services. Many will do the math for you, and some will even file your taxes. Check out our list of the best nanny payroll services.
Payroll Forms for Nanny
You must submit certain payroll papers to the IRS as an employer. Some must be sent to your employee, and you should maintain a copy of each. The summaries of each major form for home employers are included below. For additional information, see our guide to payroll forms.
Form I-9
Employment Eligibility Verification: Have the employee fill out this form when they are hired, and maintain it for three years, whether or not they are still with you.
Form W-4
Employee’s Withholding Allowance Certificate: If your employee wishes you to withhold federal income taxes on their behalf, they must fill out this form as soon as possible after starting work. It informs you of the amount of money you must withhold. They should provide you this even if you don’t pay their taxes since it makes filling out the W-2 simpler.
Form W-2
Wage and Tax Statement: Even if you aren’t withholding income taxes, you should fill out this form and deliver it to your employee so they know how much Social Security, Medicare, and FUTA taxes, as well as their gross cash earnings, have been paid. This allows them to appropriately fill out their tax forms.
- Give your employee copies B, C, and 2 of the Form W-2 by February 1st.
- Send W-2 to the Social Security Administration by February 1st (SSA). You do not need to transmit this to the SSA if you did not withhold federal income taxes and your Social Security/Medicare earnings were less than $2,400.
Form W-3
Wage and Tax Statements: If you submit Form W-2s with the Social Security Administration, you must also include a Form W-3. This is a summary of the W-2 forms you handed out during the year. Even if you’re just mailing a W-2 to one employee, do this. The deadline is February 1st.
Schedule H
Household Employment Taxes: (Form 1040 or 1040-SR), If you don’t have to submit a tax return, include this with your federal income tax return or file it separately if you don’t have to. The deadline is April 15th.
Form 940
If you paid FUTA in 2021, you must submit this form, which details the total FUTA taxes you owe, less any payments you made throughout the year.
Unless you have paid FUTA each quarter and are current, send this form by January 31. In such scenario, the paperwork must be submitted by February 10th.
Conclusion
It’s critical to pay nanny taxes for your home employee, not only to remain on the right side of the law, but also to ensure your employee’s future benefits. While there are a lot of things to think about at first, it’s not too difficult if you get into a pattern.
Nonetheless, there is a wealth of great payroll software and services available to assist you. SurePayroll is a good option for those looking for a low-cost full-service payroll solution. Take a look at it right now.
Pay a visit to SurePayroll.
The “nanny tax requirements by state” is a new law that will be in effect starting in 2022. The purpose of the law is to help offset the cost of childcare for working families.
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