Defining "The Nanny Tax": Why and How Taxes Apply to Babysitters (& Others)

So, if you pay a nanny $200 each week, this makes her first-quarter wages (January through March) total $2,600—more than the $1,000 per quarter discussed earlier—meaning you will pay FUTA taxes. At $200 per week, your nanny's annual salary is $10,400. But, remember, you only pay the 0.8 percent on the first $7,000 of FUTA wages, for a grand total of $56 in FUTA taxes.

Making Payments

    Once you know what you owe, you need to know how to pay it to dear Uncle Sam. When you file your federal income tax return, attach Schedule H to your Form 1040. Schedule H will help you figure out your total household employment taxes, which you will then add to your income tax. Pay the amount by April 15!

    To report your household employee's wages and those federal employment taxes, you'll need certain tax forms:
    • Form SS-4: On tax forms, you'll have to include your Employee Identification Number (EIN). But since you're reading this, it's safe to assume that you don't have an EIN yet. No worries! Just fill out Form SS-4 or apply online through the IRS. (It's more secure to use an EIN rather than your Social Security number on forms you might lose.)
    • Form W-2: If you pay Social Security and Medicare wages of $1,600 or more, fill out Form W-2 and give Copies B, C and 2 to your nanny to fill out. Copy A (along with Form W-3) goes to the Social Security Administration.
    • Schedule H: If you pay your household employee cash wages of $1,600 or more, file Schedule H.

    Note: Once you hire a caregiver, have her show you her Social Security card, or have her fill out and sign Form W-10, which provides her name, address and Social Security number for tax purposes. Keep this information with your tax records.
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