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So what are the payroll taxes household employers pay?

Nanny taxes, what are they?  First it is important to understand the so called “nanny taxes” are not just for nannies! The Nanny Tax is a catchy phrase for headline writers! However, these are really household employment taxes and apply when you hire a nanny, housekeeper, maid, senior caregiver or other domestic worker.

Household employers contribute to or pay:

  • Social Security & Medicare Taxes (via payroll deduction);
  • State Unemployment Taxes;
  • Federal Unemployment Taxes;
  • Employee Disability Taxes where required;
  • And lastly Workers’ Compensation Insurance (a policy of insurance, not a tax).

Employers and employees share Social Security and Medicare Taxes responsibility. Each contribute a total of 7.65% of payroll. At the end of the day, you, the employer, are solely responsible for the deduction and remittance of the Social Security and Medicare taxes – the nanny taxes. Should you fail to collect this tax from the employee via periodic payroll deductions, the employer remains responsible to remit or pay the tax to the IRS. The household employee CANNOT remit their share of Social Security and Medicare tax independent of the employer.

There is no statute of limitation on the employer’s nanny payroll tax obligations.

Paying off the books might sound like a great idea – until it isn’t! The single most common way a family get’s caught is when the employment relationship end badly or suddenly, and the nanny files for unemployment compensation or benefits. In a situation where the nanny was being paid off the books, she will still be entitled to benefits – the only consideration she is likely to have when her groceries or rent are on the line. The family in these situations becomes 100% responsible for all Social Security and Medicare taxes – both the employer and employee portion. There can be substantial back nanny tax payments and unemployment insurance payments, as well as penalties and interest due. The protections of unemployment insurance are generally extended to all workers, whether they have legal work authorization or are undocumented workers.

Video: Your Nanny Taxes