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Home › Articles › Financial Fitness › Nanny Taxes

Nanny Taxes

Keeping Clean with the IRS

By Joe Cooke, J.D., C.P.A.

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If you hoped you could just pay your nanny cash and be done with it, think again. If you supervise your nanny directly, then your nanny is considered to be a "household employee." That means you will have to file certain reports with the IRS and pay employment taxes, just like any other employer.

Household Employees
When you hire your first household employee you must apply for an Employer Identification Number (EIN). If you file by phone, you can get your EIN immediately. If you file the paper form, it will take about four weeks. The instructions that come with Form SS-4 explain how to file. This step is important. You have to have an EIN in order to file and pay your federal employment taxes.

In addition to getting your EIN, you need to have your new nanny fill out INS Form I-9. Your employee must produce two pieces of identification, such as a valid driver's license and a passport or a social security card. Keep the completed I-9 on file in case the INS requests a copy.

Once you have an EIN, you are ready to start paying your employee, and that means that you are ready to tackle your tax issues. There are two basic categories of federal employment taxes: those that are withheld from the employee's pay and those that are paid by the employer.

Taxes That Can Be Withheld
There are three employee-paid taxes that can be withheld from wages: Social Security, Medicare and income tax. Social Security and Medicare are commonly known as FICA (named for the Federal Income Credit Act that created those taxes). For 2006, the employee's share of FICA is 7.65 percent: 6.2 percent for Social Security and 1.45 percent for Medicare.

You are not required to withhold federal income tax from your nanny's wages. However, if your employee requests you to withhold and if you agree, IRS Circular E will give you more information on withholding, as well as the tax withholding tables. In addition, you will need a completed Form W-4 from your nanny.


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