I set up NannyPay2 and clicked on the option to withhold federal income tax. NannyPay is withholding Social Security and Medicare taxes (FICA), but not withholding anything for federal income tax. Why not?
If all the software settings are correct, you are probably just not paying your nanny enough in wages to trigger withholding. Although FICA taxes are flat rate taxes which are calculated on every dollar of your employee’s gross pay, the amount of federal income tax withholding is progressive, and depends upon not only your nanny’s anticipated annual salary, but also upon his or her filing status (e.g., single, married or head of household), exemptions claimed, and other factors.
As a test, try doubling your nanny’s pay to see if the software then starts to withhold income tax, but be sure to later delete the test transaction.
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