When school’s out, parents might need a nanny to take care of their children — and they may also need to file taxes for that babysitter.
Hiring a nanny can be expensive. The average cost of care for one child for 40 hours a week in New York City is $17.50 an hour, or more than $3,000 a month, according to child-care website Care.com. Paying that much makes you an official employer by the Internal Revenue Service’s standards, which means you have to withhold your employee’s payroll taxes, such as Social Security and Medicare.
The rule is known as the “nanny tax,” though it applies to anyone who works in the home and paid more than $2,100, including housekeepers, maids, babysitters and gardeners. If you pass that threshold for one household employee, you are required to withhold 6.2% for Social Security and 1.45% for Medicare taxes from all wages, the IRS said.
You are also required to pay your own share of Social Security and Medicare taxes, or an additional 7.65%. If you are withholding these federal taxes, you’ll also have to give your nanny a W-2 Form and file a 1040.
See: Read this before hiring or paying a nanny
Going into the summer with a plan to withhold your babysitter’s federal taxes will help avoid headaches after you’ve surpassed the $2,100 threshold, said Kerri Swope, vice president of Care.com HomePay, a firm that provides tax services to families with household employees. “Three months or 12 weeks for most summer breaks does add up,” she said.
It’s easy to cross the income threshold that requires registering a nanny with the IRS, Swope said. Case in point: A New York family with one child paying a nanny $17.50 an hour, or $700 a week in gross pay, would need to allocate an extra $50 per week for employer taxes, according to the Care.com’s online calculator.
And yet 90% of people are not still paying the required taxes on their nanny, according to personal-finance site SmartAsset. Some employers may simply not be aware that they’re required do so, while others may believe it does not apply to them. They’re also depriving their employee of future Social Security benefits when they retire.
People who avoid registering their nannies with the IRS, especially those with careers in the public eye, also risk an expensive and potentially humiliating public scandal. If they’re caught, they will have to pay back taxes, penalties and interest on unpaid taxes.
Source : MTV
