Household Employees / Nanny Tax
By: Hartman, Blitch & Gartside CPA's
4929 Atlantic Boulevard
Jacksonville, Florida 32207
904-396-9802
www.hbgcpa.com
Do you pay a babysitter/nanny working in your home more than $1,100 per year? Well, unless that babysitter is your parent, spouse, under-age-21 child or someone under age 18 whose principal occupation is not household employment (a student, for example), then you owe the "Nanny Tax". The nanny tax is actually shorthand for four employment taxes -- Social Security and Medicare taxes (together referred to as FICA tax), the federal unemployment (FUTA) tax, and the Florida unemployment tax (SUTA). You may remember that Congress simplified the federal nanny tax rules several years ago. Now you can pay the federal tax annually on your 1040, instead of quarterly. However, the Florida unemployment tax must still be paid quarterly. Figuring what you owe has not become any simpler.

The FICA Tax Rules
FICA tax totals 15.3% of wages. Technically, the employer (you) and the employee (the nanny) each owe an amount equal to 7.65% of the wages, for a combined tax of 15.3%. You can withhold the nanny's half from her paychecks (like your employer does at work), but few people actually do this. Most simply pay the nanny a cash wage without any withholding. When this happens, you must pay the entire 15.3% .

The FUTA Tax Rules
FUTA is due on the first $7,000 of the nanny's wages for the year -- but only if you paid $1,000 or more in any calendar quarter for the two previous years. And only if that nanny is not your parent, spouse or under-age-21 child. The good news is that the FUTA rate is only 0.8%, assuming you paid the state unemployment tax you owe by January 31 of the following year. If you don't, the FUTA rate jumps to a hefty 6.2% of wages. The SUTA Tax Rules

  SUTA is also due on the first $7,000 of the nanny's wages for the year but only if you paid $1,000 or more in any one quarter. Again this does not apply if the nanny is your parent, spouse, or under-age-21 child. The rate begins at 2.7% but after two years it will be adjusted based on the claims made against you. If there are no claims, it could drop to only 0.1%. Federal Income Tax Withholding
Federal income tax (FIT) withholding is required only if you and the nanny agree to do it, and the nanny gives you a Form W-4. This is unusual, and complicates everything. Contact us for the details.

Paying the Taxes and Filing the Paperwork
If you owe any FICA or FUTA taxes (or if any federal income tax was withheld from the nanny's wages), you need an employer ID number (EIN). Get one ASAP by filing Form SS-4.

You must then give your nanny a Form W-2 and file a copy with the government (along with Form W-3).

Any FICA and FUTA taxes on the nanny's wages are simply treated as part of your personal tax liability for the year. They are calculated and reported using Schedule H (Household Employment Taxes). The tax amounts are transferred from Schedule H to line 52 of your 1040, and the completed Schedule H is then filed with the return. Calculating what you owe isn't easy. That's because technically the nanny's "wages" include the withholding that you haven't taken from her paycheck. In order to calculate the nanny's taxable income divide the cash wages by .9235. The result is the nanny's gross or taxable income. If your nanny tax bill is large, you should be aware that next year the IRS will start charging an interest penalty if your taxes turn out to be underpaid because you didn't take the nanny tax liability into consideration. You can avoid the penalty by paying your nanny tax as you go, via extra withholding from your salary or bigger quarterly estimated payments.

SUTA tax is paid quarterly on form UCT-6. First, you must register by filing form UCS-1 by the end of the month following the first calendar quarter wages are paid. The state will issue you an account number and should send you quarterly reports before the end of each quarter. The reports are due by the end of the month following the calendar quarter (April 30, July 31, October 31, January 31). State wages are calculated the same as the federal. Remember, only the first $7,000 paid to each employee/nanny each year is taxed for state unemployment.

How to Get Forms
You can get all the necessary forms from us and we can prepare or assist you with them. Also, you can get Form SS-4, Form W-2, Form W-3, and Schedule H from the IRS by calling (800) TAX-FORM. You can also order IRS Publication 926 (Household Employer's Tax Guide) as well. Form SS-4 and Schedule H can also be ordered by fax. Use your fax machine handset to call (703) 368-9694, and then follow the audio prompts. Finally you can use your computer to download Form SS-4, Schedule H, and Publication 926 by accessing the IRS Web site http://www.irs.ustreas.gov/ . (Forms W-2 and W-3 can not be downloaded or faxed.) SUTA forms can be obtained by calling the Florida Employer Information Center (800)482-8293, or downloading from the Florida website at: http://www.state.fl.us/dles/uc/uc_home.htm