If a taxpayer pays above a certain amount to a person that works in their home, they will owe the so-called "Nanny Tax." For 2017, the domestic employee coverage threshold, or the amount at which the "Nanny Tax" will kick in, is $2,000, which is the same as the 2016 threshold. If you pay the employee less than $2,000 in cash wages in 2016, none of the wages you pay the employee are Social Security and Medicare wages, and neither you nor your employee will owe Social Security or Medicare tax.
Traditionally, an employee who is paid a “salary” instead of an hourly wage is an “exempt” employee under the Federal Fair Labor Standards Act (FLSA), meaning that this employee is not eligible for overtime pay required by that law. Nannies, housekeepers and most domestic employees who work in your home do not qualify as “exempt”, meaning you must pay those employees at least the prevailing federal minimum hourly wage rate and one and one-half times their normal hourly rate for all hours worked in one week over 40 hours. So, can you legally pay your nanny a salary? The answer [...]
POST UPDATE: Since this was first posted on November 8th, at the end of November, a Texas federal judge granted a preliminary injunction against the new OT threshold level, so the new threshold did NOT go into effect on December 1st. While this did not go into effect it is still the law to pay your nanny overtime for any hours over 40 a week. Effective December 1, 2016, the Department of Labor (DOL)’s new regulations regarding when an employee may be considered “exempt” (not eligible for overtime) under the Fair Labor Standards Act (FLSA) take effect. These new regulations [...]