Do I Owe Federal Taxes?

Federal Tax Withholding’s for a Nanny

If you are employing a nanny or caregiver and pay them $2,700* or more in a calendar year, you are by definition a “household employer”.  When you hit this threshold there is no option to whether or not you can pay them under the table.  This means, by law, you must pay taxes – period! So the real question becomes, how do you go about properly paying your employee and your taxes? 

Required Nanny Tax Withholdings

As an employer, you are required to withhold Social Security and Medicare taxes. Depending on the state you live in, you may also be required to carry Workers Compensation Insurance. To find out if you are required to carry this insurance you can visit the updated state-by-state list here.  

If you are a first-time employer, you will need to file and become an employer with the federal government and secure your Employer Identification Number.

There are a variety of payroll services that will help you pay your nanny and calculate the appropriate taxes you both owe. Options range from full service to DIY – and the pricing reflects the level of service you are looking for. You can expect to pay over $1,000 per year for full service to as little as $149 with NannyPay’s DIY solution.

NannyPay is a DIY payroll software that allows you to create an employer and employee profile to calculate and track your payroll and taxes. NannyPay will also produce your Schedule H and W2 reports for tax time for no additional cost. In the software, you can choose to pay your employee weekly, monthly, bi-monthly, or however you worked it out. Although NannyPay does not currently offer direct deposit, there are several options to set up this service with third parties, which we have outlined in this article.

As an employer and employee, you BOTH have tax obligations for social security and Medicare taxes.  As an employer, you have the option to pay just your portion or you can offer to pay their portion as well. If you choose to pay their portion of taxes they will have a larger take-home pay and you will pay more in taxes on the back end. Be sure when negotiating pay that both you and your employee know the difference between gross and net pay, so there are no surprises come the first paycheck.

As an employer, you also have the option to withhold your employees’ income tax. This is done in NannyPay by simply checking a box. It is important that your employee understands they will be responsible for their income tax if it is not withheld from the paycheck automatically.

We hope you found this helpful. Before you decide if you need a full-service payroll provider or a DIY payroll solution, try a full license version of NannyPay absolutely FREE for 30 days!

*Updated February, 2024