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Nanny Tax - A Breakdown

Posted by HomeWork Solutions on 4/7/16 9:00 AM
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Do you have a nanny and pay him or her over $2,000 in wages? Congratulations! Now you’re considered a household employer and must file Social Security and Medicare payroll taxes. You will have to report your nanny’s income and taxes paid for the year as well as file report and pay employment taxes on your federal income tax return. There are several forms you need to understand if you employ a nanny in the home. Read on to learn more about these tax forms.

W-3 Tax Form

A W-3, also known as Transmittal of Wage and Tax Statements, is a document forwarded to the Social Security Administration. It shows:

  • Total earnings
  • Medicare wages
  • Social Security wages
  • Withholdings for all employees

This form will include any tax information related to your nanny’s wages and tax withholdings.

You will file this form with all your household employees’ W-2s, so it’s important that the numbers match.

W-2 Tax Form

A W-2 is the tax form that details how much you’ve paid your nanny each year and how much taxes you withheld from their paycheck. W-2s must be filed and sent to your employee by January 31st following the close of the tax year. You will have to file a separate W-2 for each nanny you hired in the previous year if you paid them over $2,000 and withheld taxes from their paycheck.

You will have to send Copy A of Form W-2 along with your Form W-3 to the Social Security Administration by January 31st. You can submit this by paper mail or electronically. Your employees will receive Copies B, C, and 2 of Form W-2.

In order to file this form, you will need your employee’s social security number and full name exactly as it appears on their social security card. You should have already collected this information when you hired your nanny.

Throughout the year, you will also have to keep detailed records of wages paid, date paid, and amount of taxes withheld to ensure the information on the W-2 form is correct.

Note: If your nanny stopped working for you before the end of the year, you can file their W-2 after you’ve made their last wage payment.

Form 1040 Schedule

Your Schedule H tax form is filed as a schedule with your federal income taxes, which are due mid-April each year. A Schedule H form details your household payroll and calculates employment taxes you owe for the prior year. File this form if you:

  • Pay Social security and Medicare wages of $2,000 or more (2016) to household employees.
  • Pay FUTA wages.
  • Withhold federal income tax from household employees.

Be sure you have an Employer Identification Number (EIN) as you will need this to file the Schedule H form.

If you aren’t required to pay federal income tax, you can file your Schedule H form separately. If you receive an extension on your income taxes, this extension will also apply to your Schedule H form.

Do not make separate payments for Schedule H and your income taxes. You will file and pay both together.

Form 941 or Form 944

Forms 941 and 944 are alternatives to Schedule H. Schedule H is used if you are an individual and don’t own a business. However, if you or your spouse own a business, you can file one of these forms:

  • Form 941, Employer’s Quarterly Federal Tax Return
  • Form 944, Employer’s Annual Federal Tax Return

In either case, you will also add your nanny to Form 940, Employer’s Annual Federal Unemployment (FUTA) tax return. Please note that wages you paid to your household employees are not business expenses and your business records must be adjusted to account for this.

If at any time you’re confused about which forms to file or if you need to file taxes for your nanny, be sure to talk to a professional.


Topics: nanny tax, nanny taxes

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