Household Employer’s Withholding Tax (Nanny Tax)
The term household employer’s withholding tax refers to a federal tax paid by individuals that hire people and pay them in excess of specified thresholds. Also known as the Nanny Tax, the Internal Revenue Service (IRS) considers ongoing household help an employee of the taxpayer. The IRS expects these employers to pay their share of Social Security, Medicare, as well as Federal Unemployment Tax.
More commonly known as the Nanny Tax, the Household Employer’s Withholding Tax clarifies the relationship between individual taxpayers and people they may hire to provide a service on an ongoing basis. The IRS defines an employee as a person that is told not only what work needs to be done, but how it should be done. This definition distinguishes household workers from providers of maintenance, repair, and construction services. The Nanny Tax applies to full time as well as part time workers. They can be hired independently, or through an agency. Finally, it doesn’t matter if the employee is paid hourly, daily, weekly or to complete a specific task.
Some examples of household work provided by the IRS include: babysitters, caretakers, house cleaning workers, domestic workers, drivers, health aides, housekeepers, maids, nannies, private nurses as well as yard workers. Generally, if annual cash wages paid to a household worker are in excess of $1,000, the employer may need to pay federal unemployment tax. In 2014, an employer paying wages in excess of $1,900 were required to pay Social Security and Medicare taxes in addition to unemployment tax.
Employers subject to the Nanny Tax are not required to withhold federal income taxes from their employee’s wages. However, they may be required to pay state level unemployment taxes; state-level rules will vary by jurisdiction.
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