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What payroll taxes does a nanny, or other household employee, pay?

Nanny payroll taxes, what are they?  First it is important to understand that the so called “nanny taxes” apply to ALL household employees, not just nannies. The proper collection and remittance of payroll taxes protects the employer and the employee from the possibility of penalties and interest associated with unpaid back taxes. The employer is solely responsible for the remittance of Social Security and Medicare taxes, but may choose to either pay both halves of this tax (15.3%), or split it with the employee (each paying 7.65%). Employees are solely responsible for paying their own Federal/State/Local income taxes. The employee may decide to have these taxes withheld from each paycheck or choose not to withhold throughout the year, but instead pay these taxes directly to the Federal/State/Local governments themselves. If you are a household employee (nanny, housekeeper, senior caregiver, etc.) you contribute to or pay:

  • Social Security & Medicare Taxes (via payroll deduction 7.65%)
  • Employee Disability/Unemployment Taxes (where required)
  • Federal/State/local Income Taxes (as applicable)

The employer is solely responsible for the deduction and remittance of the Social Security and Medicare taxes – the nanny payroll taxes. Should the employer 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. The employee is solely responsible for the payment of income taxes.

There is no statute of limitation on tax obligations!

This is an important point families and employees need to understand! Should the employment relationship end badly or suddenly, you may need to file for unemployment compensation or benefits. In a situation where you were being paid off the books, you will still be entitled to benefits, however it will likely raise a red flag that employment and income taxes are past due. 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 for the family.  You will be responsible for all back income taxes, which can accrue additional penalties and interest as well.  The protections of unemployment insurance are generally extended to all workers, whether they have legal work authorization or are undocumented workers.

Video: Anatomy of a Nanny’s Paycheck