FREQUENT QUESTIONS
What are nanny taxes?
When you hire someone to work in your home, the government considers you an employer. As an employer you are responsible for paying employment taxes. These taxes are commonly known as "nanny taxes". There are two components of nanny taxes: the employer contribution and the employee withholding.
The employer contribution includes Social Security, Medicare, New York Unemployment and Re-employment taxes and federal Unemployment taxes. The employee withholding includes Social Security and Medicare and possibly, federal, state and city income taxes.
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Am I required to pay nanny taxes?
- If you pay an employee $500 or more in any quarter, you are required to pay New York unemployment and re-employment taxes.
- If you pay an employee $1700 or more a year, you are required to pay Social Security and Medicare taxes.
- If you pay an employee $1,000 or more per quarter, you must pay federal unemployment taxes.
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How much do nanny taxes cost?
Generally, the employer contribution costs an additional 10% on top of your employee’s salary. For example, if you pay $500 a week, paying nanny taxes costs about $50 a week*. This cost includes Social Security, Medicare, New York Unemployment and Re-employment taxes and federal Unemployment taxes.
Withholding nanny taxes affects your employee’s salary about 20%. For example, if you pay $500 a week, your employee will take home around $400*.
*These are estimates which vary based on actual salary, employee exemptions and annual unemployment tax rates and wage caps.
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How can I save money by paying nanny taxes?
There are two strategies to minimize your nanny taxes. You can use either a Flexible Spending Account or the Dependent Care Tax Credit to reduce your nanny tax costs. These credits are only available if you pay your nanny taxes.
- The Flexible Spending Account. With this option, you may completely offset your nanny tax costs! For example, paying your nanny $500 a week will lead to nanny taxes of about $1,900 annually. By putting $5,000 into your Flexible Spending Account, you reduce your annual taxes by about $2,500. The result? You reduce the cost of paying nanny taxes to $600. Check the availability of this benefit with your company or benefits staff.
OR
- The Dependent Care Tax Credit. This is a credit towards taxes you owe that is based on the number of children you have under the age of 13. The credit can reduce your federal taxes by $600 for one child or $1200 for two or more children. For example, if you owe $1,300 in federal income taxes, this benefit will reduce your federal taxes bill to $100 (if you have two children) or $700 (if you have one child).
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How do I know how much to pay my nanny?
The Nanny Tax Company prepares a custom withholding statement for you reflecting your employee’s salary, exemptions and unemployment tax rates. This statement shows, by pay period, the employer contribution and the employee withholding. Click here for a sample withholding statement. We update and send you a new statement at the beginning of each year as salaries and tax rates change.
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Do I have to withhold income taxes from my employee’s salary?
No, you are not required to withhold city, state or federal income taxes. However, if you do not withhold these taxes, your employee must still pay these taxes and may be required to pay quarterly estimated tax payments or make a large tax payment at the end of the year.
When are my nanny taxes due?
New York requires employers to pay New York state and city taxes after the end of each tax quarter. Fines and penalties begin accruing the day after each filing deadline. The upcoming filing deadlines for New York are:
- January 31
- April 30
- July 31
- October 31
If you withhold $700 or more in state and city income taxes in a quarter, you must also prepare and file an NYS-1. As part of our service we track, prepare and send you this form. This form and tax payment are due within 5 business days of the paycheck triggering this event. Generally, employers paying at least $750 gross per week or $575 net per week are subject to this additional filing requirement.
Federal nanny taxes are filed annually when you file your federal taxes. They are reported using a Schedule H, which we prepare. However, if you pay quarterly estimated tax payments, federal nanny tax payments must be included in these payments. Call us for additional details.
In addition, you must give your employee a W-2 by January 31 and file a W-2 and W-3 with the Social Security Administration by February 28. These forms are included as part of our service.
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Are there any other requirements for New York employers?
If your employee works 40 or more hours a week, New York requires employers to have Workers Compensation insurance and Disability insurance. We recommend talking to your insurance agent about these policies; some firms offer discounts on multiple policies.
When you register as an employer, the New York State Workers’ Compensation Board will contact you. You must respond to confirm your insurance policy information or you will be fined.