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  • Another nanny tax question

    Do I wait to start taking out taxes of the paycheck until the nanny has made 2k? Or do I take taxes out of the paycheck from the beginning? What if she quits or I have to let her go before she's hit the 2k threshold and I've already been taking out taxes? It is my understanding that if you are paying a household employee less than 2k/year you do not need to take out taxes. Thanks for any guidance!

  • #2

    Do I wait to start taking out taxes of the paycheck until the nanny has made 2k? Or do I take taxes out of the paycheck from the beginning? What if she quits or I have to let her go before she’s hit the 2k threshold and I’ve already been taking out taxes? It is my understanding that if you are paying a household employee less than 2k/year you do not need to take out taxes. Thanks for any guidance!
    Click to expand...

    Household employment taxes are paid annually by filing schedule H along with your 1040. You can withhold federal taxes and FICA during the year or wait and pay them all at the end of the year. Many people work the FICA into the negotiated pay then pay it all themselves. If you have been withholding federal taxes and the HH employee quits before earning $2,000, you should refund the federal withholding.

    You need to check the laws at your state level for state withholding and unemployment taxes.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      Thanks Johanna!


      • #4
        Having just gone through setting all this up:

        Taxes due from dollar 1.  However if you are under the income threshold then it is not required.  Remember is is $2000 a year, or $1000 in a quarter (neither of which are too hard to hit).  Like Johanna said in her infinite wisdom, schedule H usually done on return as for most nannies you don't hit a tax amount high enough that required more frequent (can't remember threshold), but keep in mind there is also State taxes such as unemployment that have to be withheld depending on your state.  These too are often quarterly (my state) or annually.

        If you went over $1000 in 3 months you're on the hook.


        • #5
          Yes, I was also going to mention making sure you're checking to see if your state has a state unemployment tax. We pay those quarterly and there are penalties for being late.

          We pay taxes from dollar #1 since we know we will easily be going over the limits. (Like, 3 weeks into the year.... nannies are so expensive.)


          • #6
            If you are willing to pay the money, there are nanny tax services out there that take all the hassle out of it. We used My Homepay--I believe they were formerly called Breedlove and they have a good reputation. More than once I called to ask questions and they know their stuff. I do our own taxes every year and was still not willing to deal with the hassle myself, at least while I was working full time with a husband in residency and 2-3 little ones at home. It wasn't cheap, but I still see it as money well spent.


            • #7
              I second the Homepay recommendation.  Its about $1000 per year, but paying the nanny is on total auto-pilot with direct deposit, digital paystubs and easy to change the comp and hours every week using the website.  If you have a question, real person answers and helps you immediately.  They fill out all the tax docs for you too and it is easy to use the digital paystubs for the $5k Dependent Care acccount (if you or your spouse have one through their employer).


              • #8
                $1000 a year!? That's a lot of money. An accountant should be able to do that for less (at least ours does). I would at least talk to an accountant before doing HomePay. I think that an accountant wanted to charge $19 a week (still less than $1000 a year) to do the nanny payroll, which we thought was expensive so we did NannyPay.

                NannyPay was only okay. It was about $200 year, but I would not use it again.  Many states require QUARTERLY income tax payments (at least Virginia and Nebraska do) which I did not realize.  I had to pay a hefty fine (about 30-40% of the taxes, more criminal than credit card companies) to the state of Virginia for being late on the quarterly payment. There are also unemployment taxes that NannyPay didn't really help me with that can be confusing.

                Having an accountant take care of our nanny taxes was one of the best perks of becoming an attending. NannyPay nearly drove me insane.


                • #9
                  I also use Homepay. It has made my life easier-- makes it super easy to utilize the dependent care account as noted above, I have  all of my tax documents automatically made for me, and can easily set up direct deposit for my nanny and make any changes in minutes with their customer service.   Is it pricey? Yes, but I am at a time in my life where I am very busy, have a toddler and one on the way, and enjoy having everything on autopilot for now. Little things like this have really helped me from burning out, kept me from being tempted to drop out of medicine and has made my life easier. Having a happy nanny who stays at her job has made my life less stressful, and I have not had to deal with daycare and can keep my toddler at home while I work downstairs.


                  • #10
                    Isn't an accountant even easier than HomePay? Maybe I'm wrong as I have never used HomePay. An accountant has all of the benefits of HomePay, is cheaper, and is a real person who knows taxes. He also takes care of the dependent care tax credit.  If an accountant does your taxes, I think it's worth asking him/her how much it is for them to do your nanny payroll.

                    I guess I have to transfer the money into our nanny's account every week through Wells Fargo Sure Pay. But that takes 20 seconds, and I do it while sitting on the couch watching TV.


                    • #11
                      I could save $200-300 a year using an accountant. But with my accountant I can't just log in and change anything I want to at any given time on the payroll or easily access all of my information and forms. I have been happy with Homepay at this time. Maybe after my next out of state move when I get a new accountant I will consolidate, but I really like Homepay's service and my current set up.


                      • #12
                        I was planning to use homepay as well (because we do our own taxes and don't have an accountant) so I'm glad to hear all the positive reviews on it. Thanks everyone!


                        • #13
                          I wrote a recent post on nanny taxes if you want to check it out. It is on my site and easy to find.

                          If you take out the taxes and she does not make 2K for the year, then you will owe her a refund. This happened to use in 2016. No big deal, just another check to write at tax time.


                          Hope that helps!


                          • #14
                            Just got my bill for an accountant. It was $585 for our taxes AND our nanny taxes/payroll. Much less than $1000 for HomePay. So at least talk to your accountant (or even get one) before doing HomePay. Maybe it's just cheaper because I'm in Nebraska and not on one of the coasts.


                            • #15

                              Thanks for sharing!  I actually have a call into my accountant to see how much it would be for her to take care of nanny payroll.  I think HomePay actually just raised their prices too so just over $1,000 per year now (with auto-debit option).

                              HomePay does make it SUPER EASY though.  Most weeks I do absolutely nothing to pay nanny and even all the quarterly taxes, fees, and nanny payroll are auto-debited from our bank account and direct deposited with nanny/HomePay/state/Feds. But, I could see the accountant making it almost as easy if I could simply email the accountant the number of straight and overtime hours for the week and maybe they could set up direct deposit and auto-debit.

                              Will report back on accounting quote from Seattle.