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Nanny Tax & Salary Guide

GTM'S Quick Guide to Payroll & Taxes for Household Employers

GTM Household Employment Experts™ is the most established household payroll and tax service in the U.S., serving families who employ household professionals since 1985.

They can:

  • Help you eliminate penalties, interest or costs of unnecessary accounting and legal fees
  • Show you how to qualify for significant tax breaks and credits
  • Keep you up to date on all state and federal regulations
  • Provide you with some helpful guidelines in employing a Nanny
  • Show you some Benefits of Being Legal

Call 1-888-4-EASYPAY for a free tax consultation.

Step 1: Determine if you have an employee or independent contractor.

Household professionals include nannies, home health aides, private nurses, cooks, gardeners, caretakers, and other similar domestic workers. The main difference between an employee and a contractor is that an employee operates under the control and supervision of his/her employer (you), and a contractor retains all control over himself and his services.

For example, a nurse who has her own company and comes by once a week to provide medical services to an aging parent is a contractor; a nanny who cares for your children in your home is an employee. For more information visit the IRS Publication 926 www.irs.gov/pub/irs-pdf/p926.pdf

Step 2: Research Tax Laws

Household Employer Taxes

The Social Security and Medicare wage threshold is $1,800 for 2012. This means that if you pay a household employee cash wages of less than $1,800 in 2012, you do not have to report and pay Social Security and Medicare taxes on that employee's 2012 wages. For more information visit the IRS Publication 926 www.irs.gov/pub/irs-pdf/p926.pdf

Employers can expect to pay 9-11% of their employee's gross pay, including:

  • Federal and state unemployment insurance (about 2-4% for most states)

  • 50% of Social Security and Medicare (7.65%)

  • Other state taxes where required, such as employment training or work force taxes

Use GTM'S tax calculator: secure.gtmassociates.com/calculator.aspx

Household Employee Taxes

Employees can expect to pay 15-20% of their gross wages, including:

  • Federal and state income taxes (not required, but advised)
  • 50% of Social Security and Medicare (7.65%) temporary reduction in Social Security to 4.2%This reduction makes FICA total 5.65%*
  • Other state taxes where required, such as Disability Insurance Use GTM'S tax calculator: secure.gtmassociates.com/calculator.aspx

Step 3: Follow Payroll Regulations

According to the Federal Labor Standards Act, all household employees must be paid at least minimum wage ($7.25/hour - higher in some states), however, benefits such as room and board can account for a portion of that wage. There is no limit to the number of hours an employee can work - provided there is mutual agreement. However, overtime may be required in your state. Paid vacations, holidays and sick days are not required by law.

Step 4: Filing the Paperwork

  • Complete SS4 Form for an Employer ID # (download at www.gtm.com/taxresourcecenter/resources_tools.html)

  • Register for State Unemployment ID # (contact state for form)

  • Register for State Withholding Tax ID # (contact state for form)

  • Complete your State New Hire Report (contact state for form)

  • Have your nanny complete W-4 Form (download at www.gtm.com/taxresourcecenter/resources_tools.html)

  • Have your nanny complete I-9 Form (download at www.gtm.com/taxresourcecenter/resources_tools.html)

Step 5: Add Workers' Compensation to Your Insurance Policy

Most states require household employers to carry a workers' compensation and/or disability policy if you employ someone on a full or part-time basis. These policies will cover you from lawsuits and liability in the event that your employee is injured on the job. If your state requires this, you can either contact your state's insurance fund or your homeowner's insurance company. GTM strongly recommends that even if you're not required to have a policy, you obtain one anyway.

Step 6: Set Up Dependent Care Assistance

You can pay your household employee with pre-taxed funds through an employer-sponsored Dependent Care Assistance Program (DCAP), if your employer offers this plan. This plan allows you to set aside up to $5,000 per year "tax free" money that you can use to pay for your childcare or eldercare. Contact your company's Human Resources department for more details.

Step 7: To Calculate your Gross to Net Payroll Taxes go to secure.gtmassociates.com/calculator.aspx

Would you like to know some Benefits of Being Legal?

  • You save time: An estimated 60 hours a year

  • You have peace of mind: By complying with current employment regulations and limiting your exposure for a possible audit

  • You save money from Tax Breaks: By paying your employee legally, you may be eligible for Dependent Care or Childcare Tax Credits

  • You save money by ensuring you avoid: Tax liability and penalties

  • You benefit from a happy employee!

When paid legally, your employee:

  • Has a legal employment history
  • May receive eligibility for important Social Security and Medicare Benefits
  • May receive eligibility for unemployment insurance coverage
  • May receive eligibility for disability benefits
  • Can receive workers' compensation
  • May qualify for Earned Income Credit

For more information, visit www.gtmassociates.com or call 1-888-4-EASYPAY.