Withholding Household Employee Taxes

If your household employee will earn $2,700* or more per year, you must withhold Medicare and Social Security taxes, commonly referred to as FICA.

If you will pay your household employee $2,700* or more this year in gross wages, you are required by federal law to withhold and pay Social Security and Medicare taxes, which are sometimes collectively referred to as FICA taxes. One half of the total FICA tax you owe the government is withheld from your household employee’s wages. NannyPay will automatically calculate the correct amount of FICA withholding.  You will pay your half of the tax when you file your federal tax return next year.

The government also offers household employers the option of paying their employee’s share of Social Security and Medicare taxes, in addition to their own. If you choose this option, remember that the government considers the Social Security and Medicare taxes you pay on behalf of your employee to be additional income to your employee. Therefore, these taxes must be included in your employee’s wages as additional income. (NannyPay also assumes that this amount is income for state income tax purposes as well.) Those amounts do not, however, count as Social Security and Medicare wages (FICA Wages) or as federal unemployment tax wages (FUTA Wages). 

If the appropriate option is checked, NannyPay will not withhold your household employee’s share of FICA, and will “gross up” your household employee’s income appropriately. It will also withhold income tax (if that option is enabled) based upon the “grossed up” wages.

Should Household Employers Withhold Federal Income Tax?

You are not obligated to withhold federal income tax from your household employee’s wages unless you and your household employee both agree to do so.

If both you and your household employee agree, you may also withhold federal income tax from your household employee’s wages; otherwise, you have no obligation to withhold federal income tax. You will also learn that most states follow this rule as well. Of course, your household employee will still be responsible for paying federal and any state income taxes on the cash wages he or she receives from you. To help your household employee avoid a hefty tax bill at the end of the year, we recommend that you withhold both federal and state income taxes. NannyPay supports all 50 states. 

If you have enabled the appropriate settings, the NannyPay software will automatically calculate the amount of federal and state income taxes you must withhold from your household employee’s pay. Some local taxing authorities are supported as well! 

Tax Forms Needed for Household Employees

If you and your household employee agree to withhold federal income tax, your household employee is required to provide you with a completed federal W-4 form.

Your household employee must complete a Form W-4 to permit you to withhold income tax. NannyPay software will automatically determine the correct amount of withholding based upon the number of exemptions and marital status your household employee claims. You should get the completed Form W-4 from your household employee on or before your household employee’s first day of work. The W-4 certificate is in effect until your household employee files a new one. When your household employee gives you a new Form W-4, you must start using it no later than the first payroll period ending on or after 30 days from the date you receive it. Remember, you do not have to withhold federal income tax on your household employee’s wages unless you and your household employee agree to do so.

You should determine your state and local withholding obligations.

Following the federal rule, most states do not require you to withhold state income tax from your household employee’s wages unless you both agree. Your state may also have unemployment compensation withholding requirements or other employer obligations such as workers’ compensation insurance. Similarly, local municipalities may have withholding rules that apply to you. You should verify your own state’s rules with your state revenue, unemployment, labor board, or other appropriate agencies.

NannyPay software supports income tax withholding for all fifty states and some major cities. NannyPay does not automatically support unemployment compensation withholding for each state. However, if your state requires you to withhold unemployment compensation contributions, you can manually configure NannyPay to withhold the correct amounts. 

*Updated February, 2024