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Nanny Taxes: The Breakdown

You have hired your first nanny.  Can you pay her gross wages without taking out taxes and other withholdings?  Read on for the scoop.

If you do not have any other employees, you may be inclined to pay your nanny without withholding anything from her gross pay.  Thus, her gross pay and net pay would be the same amount.  For example, if your nanny’s pay rate is $20 per hour and she works 80 hours in the two-week pay period, her gross and net pay would be $1600 ($20 x 80 = $1600).  This manner of paying your nanny is quick and easy, there are no extraneous calculations for withholdings, and there is no government reporting.  However, this practice may or may not be legal.  It depends on several factors detailed below.

If you classify your nanny as an employee, you must deduct the legally required payroll withholdings from her first pay check and from each pay check thereafter.  (Legally required payroll withholdings are explained below.). Thus, her gross pay would be greater than her net pay. 

If you do not classify your nanny as an employee, and if you expect to pay your nanny less than $600 in the calendar year, you do not need to withhold anything from your nanny’s gross pay.  Thus, her gross pay and net pay would be the same amount. 

If you do not classify your nanny as an employee, and if you expect to pay your nanny more than $600 in the calendar year, you must deduct the legally required payroll withholdings from her first pay check and from each pay check thereafter.  Thus, her gross pay would be greater than her net pay. 

Legally required payroll withholdings may include federal, state, and local income taxes; Social Security retirement deductions; and Medicare deductions.  

If you can be considered your nanny’s employer, you must pay employer payroll taxes in addition to payroll withholdings paid by your nanny.  Your payroll taxes will include Social Security contributions and unemployment insurance fund contributions. 

Navigating payroll, taxes, and employment law can be tricky indeed.  Check out our Resource Center at Nannies4hire.com to help you.

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