The nanny tax wage test, the minimum amount of wages paid that obligates the household employer for household employment taxes, is $2,600 of wages paid to an employee in the year 2023 (or $1,000 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 as your personal income tax return is filed under penalty of perjury.
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.
Annual Wage Test Amount
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 nanny tax 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. Nanny tax rules by state, 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.
Employers with questions about their employment tax wage obligations may contact HomeWork Solutions directly at 1-800-626-4829. We invite you calls and are happy to chat with you.