How are the nanny’s (employee’s) payroll taxes paid?
Nanny payroll taxes – most household employers have BOTH Federal and State tax reporting and filing obligations. But how do payroll taxes work?
Household Employers: How to Pay Nanny Payroll Taxes Checklist
Federal Employment Taxes
The Federal employment taxes include Social Security tax, Medicare tax, withheld Federal Income Tax (if applicable), and the Federal Unemployment Tax (FUTA).
The household employer is required to collect the employee’s (nanny, housekeeper, etc.) contribution to Social Security and Medicare taxes. Should you fail to collect, you remain responsible to remit these taxes for the employee. The Internal Revenue Service (IRS) collects the nanny taxes. They are summarized annually on the family (employer’s) Form 1040 Schedule H – an attachment to the family’s personal federal income tax return.
The nanny payroll taxes are added to the family’s personal income tax liability. Most families with full time staff will make quarterly tax payments of the payroll for household employees using 1040ES estimated tax payment coupons. This protects the family from substantial underpayment penalties at year end should the total family income tax + nanny payroll tax liability be too large.
Most household employers with a full time staff member offer to deduct income taxes for the employee from his/her payroll. This is a convenience to the nanny or other household staff, relieving them from the need to make quarterly estimated tax payments on their own. Utilizing a household employee payroll service makes these tax calculations, deductions and payments effortless for hiring families. Families with occasional or part time staff, such as a weekly housekeeper, in general do not deduct income taxes from the employee’s payroll.
Separately, the nanny employer is typically required to register for and make quarterly payments of state unemployment taxes. These unemployment taxes are paid to the state where the work is physically performed. Many states are moving to require online payroll reporting and unemployment tax payments.