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Tax Tidbit: Household Employee Taxes ARE the Nanny Taxes

Posted by Kathleen Webb on Mar 16, 2014 7:00:00 AM

household employeeHousehold employee placements- including butlers, chefs, housekeepers and nannies- are on the rise, said Sarah Tilton of the Wall Street Journal in a recent online article. Accustomed to the high level of service they receive on luxury vacations and five star hotels, wealthy homeowners are increasingly staffing their residences with specially trained personnel to make their lives more comfortable.

While the job description might differ, the one attribute that connects all of these household employees are the tax obligations of their employers- otherwise known as the nanny taxes. As defined by the Internal Revenue Service, a household employee can be full time or part time, hired through an employment agency or association, be paid hourly, daily, weekly or by the job. As their employer, you control not only what work is done, but how it is done. This means that a W-2 tax form is issued, not a 1099 which is reserved for independent contractors. [Read our previous blog post Household Employee or Independent Contractor?].

According to Vincent Minuto, founder of employment agency Hampton Domestics, with offices in Manhattan, Palm Beach and Miami Beach, clients spend anywhere from $35,000 a year to over $1 million a year on household staff. But for the rest of us who may employ a single nanny or housekeeper, the income threshold is the same.

A chart courtesy of the IRS lays out the tax obligations as they pertain to the wages you pay your nanny or any other household employee:

If you:

Pay cash wages of $1,800 or more in 2013 to any one household employee*
Do not count wages you pay to—
Your spouse,
Your child under the age of 21,
Your parent (see Wages not counted, later, for an exception), or
Any employee under the age of 18 at any time in 2013 (see Wages not counted, later, for an exception).

Then you need to:

Withhold and pay social security and Medicare taxes.
The taxes are 15.3% of cash wages.
Your employee's share is 7.65%.  
You can choose to pay it yourself and not withhold it.)
Your share is 7.65%.

 

Or, if you:

Pay total cash wages of $1,000 or more in any calendar quarter of 2012 or 2013 to household employees.
Do not count wages you pay to—
Your spouse,
Your child under the age of 21, or
Your parent.

 

Then you need to:

Pay federal unemployment tax.
The tax is .6% of cash wages.
Wages over $7,000 a year per employee are not taxed.
You also may owe state unemployment tax.

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Topics: household employee taxes, 1099 v w-2, domestic employer legal responsibilities, nanny tax compliance

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