Many wonder how to pay nanny taxes and how often to file. Understand that the federal and state filing schedules are NOT synchronized. Additionally, not all states have the same reporting schedule.
Federal Employment Taxes: Employers of domestic workers must, at a minimum, make annual payments for Social Security, Medicare and Withheld Income Tax (if applicable), as well as Federal Unemployment Tax (FUTA). This filing is incorporated with the family (employer’s) annual Federal Income Tax Return, reported on Form 1040 Schedule H.
Federal employment taxes are added to the employing family’s total annual Federal tax liability. They are subject to underpayment penalties just like income taxes. If you have too little tax withheld from your paychecks, or have additional liabilities such as paying nanny payroll taxes, you could be hit with penalties and interest charges for under-withholding/underpayment. The real possibility of these penalties causes most employers of full time household workers to make quarterly payments to the IRS to offset this liability. (Social Security and Medicare taxes alone on a $750/week household worker are $6K annually!) These quarterly payments are made via 1040ES vouchers for credit to the family’s tax account.
» IRS Publication 505 – Underpayment penalties
State Reporting: States collect unemployment insurance taxes, maintain records of wages paid to individual employees for management of the state’s unemployment insurance compensation system, collect state income taxes where applicable, and may collect other miscellaneous wage based taxes as authorized by the state legislature. Household employers generally must complete wage reporting forms on a quarterly basis. Generally, state unemployment taxes and withheld state income taxes must be paid on a quarterly basis.
Other Reporting You are required to give your employee a wage and tax statement (Form W-2) no later than January 31. All Forms W-2, along with a summarizing Form W-3 are sent to the Social Security Administration no later than January 31 also.
Complete Payroll clients have their periodic tax payments and reporting done automatically as needed. Essential Payroll clients who calculate and issue their own payroll have the additional step of reporting the payroll at the end of every quarter, and HWS will take it from there. Your employee’s will receive their W-2 forms and you will receive a completed Schedule H and Year End Summary to help you prepare your personal tax return or to simply hand off to your accountant.
