Nannies are Considered Household Employees
How Much Should You Expect to Pay?
Example: You pay your nanny $3,000 a month in wages. You owe about $229.50 per month for Medicare and social security and about $35 per month in unemployment taxes. The total monthly cost of your nanny is around $3,264.50.
For a quick rough estimate, tac on 10% to your nanny's salary.
You are required to pay your nanny overtime for all hours worked over 40 in a 7 day period. This must be 1.5 times the normal hourly wage.
How Much Should You Expect to Earn?
Example: You earn $3,000 a month in gross wages for your nanny position. You will take home between $2,400 and $2,550.
*please note this is an approximation
Why is my nanny considered a household employee and not an independent contractor?
The below information is straight from the horse's mouth (IRS Publication 926).
You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it doesn't matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also doesn't matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.
Now that we know nannies are considered household employees, let's breakdown the tax situation.
Household Employers are expected to withhold and pay social security and Medicare taxes if they pay cash wages of $2,100 or more during the year.
The taxes are 15.3% of cash wages.
The employee's share is 7.65%.
(You can choose to pay it yourself )
The employer's share is 7.65%
*FYI: Nannies will also pay federal income tax. This will probably be 10, 12 or 22% depending on their taxable income.
Household Employers are also expected to pay federal unemployment tax if they pay total cash wages of $1,000 or more in any calendar quarter to household employees.
The tax is 6% of cash wages.
Wages over $7,000 a year per employee aren't taxed.
Employers also may owe state unemployment tax.
*This can change from year to year.
Unless you live in Wyoming, Washington, Texas, South Dakota, Nevada, Florida or Alaska, nannies will have to pay state income tax.
State income tax
Pennsylvania has a flat rate of 3%
New York has an eight bracket system. Nannies likely fall in the range between 4 and 6.33%. Details below.
4 % on the first $8,500
4.5 % on income between $8,501 and $11,700
5.25 % on income between $11,701 and $13,900
5.9 % on income between $13,901 and $21,400
6.33 % on income between $21,401 and $80,650
New Jersey has a seven bracket system. Nannies likely fall in the range between 1.4 and 5.25%. Details below.
1.4 % on income between $0 and $20,000
1.75% on income between $20,000 and $35,000
3.5% on income between $35,000 and $40,000
5.525% on income between $40,000 and $75,000
Local income tax may also apply!
Philadelphia's rate is 3.8%
Note these rates can change from year to year so be sure to do some research!
To boil this all down, if you have a nanny, you are a household employer and must pay 7.65% of cash wages for medicare and social security (or 15.3% if you choose to cover your nanny's share). If your nanny earns more than $1,000 in a given quarter, you will need to pay an additional 6% for unemployment taxes (wages over $7,000 a year aren't taxed).
You are expected to withhold your nanny's taxes. You will have to file state and federal returns quarterly and pay your employer and employee taxes. You will also need to prepare year-end tax documents that include a W-2, W-3, Schedule H and Sate Annual Reconciliation.
If you are a household employee, you will be paying into social security and Medicare, federal income tax, state income tax and possibly local income tax. Your employer is expected to withhold these taxes from your paycheck and pay them quarterly. What does this mean in terms of take home pay? You will take home 80 to 85% of your gross wages. There are many free tax calculators floating around on the web. This one seems to work well. You will need to file year-end tax documents.
Employers! The good news is Allo can set you up with a reputable payroll service who will take care of everything for you! They register for federal and state tax accounts, automate payroll and prep and file tax documents. This will cost about $200 per quarter.
International Nanny Association
Paying Employment Taxes
Dependent Care FSA