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Nanny Tax Wage Test Steadily Increases

HomeWork Solutions, Inc., December 2015

The nanny tax wage test, the minimum amount of wages paid that obligates the household employer for household employment taxes, is $2000 of wages paid to an employee in 2016 (or $1000 paid total in a calendar quarter for FUTA tax).

Nanny tax legislation enacted in 1994 dramatically modified the tax code and created much more risks for families who are not compliant with their household employment tax obligations. Most importantly, household employment taxes are remitted to the IRS as part of the family’s personal income tax return, substantially increasing the potential penalties for non-compliance. Congress made provisions for periodic inflation adjustments of the wage test that obligates the household employer to remit Social Security and Medicare taxes on wages that they pay their household workers. Until 1994 the wage test obligated employers who paid a household worker $50 or more in a quarter to Social Security and Medicare (FICA) taxes. The table below gives the historical values.

 

Year Annual Wage Test Amount
2016 $2000
2015 $1900
2014 $1900
2013 $1800
2012 $1800
2011 $1700
2010 $1700
2009 $1700
2008 $1600
2007 $1500
2006 $1500
2005 $1400
2004 $1400
2003 $1400
2002 $1300
2001 $1300
2000 $1200
1999 $1100
1998 $1100
1997 $1000
1996 $1000
1995 $1000
  1994 and earlier   $50 in any calendar quarter

 

Household employers are NOT obligated on the Federal level to deduct or withhold Federal income taxes from their household employee’s wages. Most, but not all, states follow the federal rules.

Household employers have a second wage test to determine whether they are subject to mandated unemployment insurance tax contributions. Household employers are subject to the Federal Unemployment Tax (FUTA) when they pay their workers $1000 or more in any calendar quarter. State obligations, separate from FUTA, are triggered at levels between $500 – $1000 in quarterly wages.

Household employers reconcile their federal employment tax obligations annually on IRS Form 1040 Schedule H. A Form 1040 Schedule H must be prepared for any year when either the annual Social Security/Medicare wage test threshold was met and/or the FUTA threshold was met. Generally, remittance of the employment taxes must be made periodically through out the year, either by estimated tax payments or increased withholding from the EMPLOYER’s pay check in order to avoid income tax underpayment penalties.

Employer’s with questions about their employment tax obligations may contact HomeWork Solutions directly at 1-800-NANITAX. We invite you calls and are happy to chat with you.





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