How to Calculate Nanny Tax

Household employee tax, commonly known as "nanny tax," is the payroll tax you owe as an employer of a household employee. It consists of Social Security tax, Medicare tax and federal unemployment tax. You owe nanny tax on each employee who works in your home and is paid at least $1,700 in wages during the year, as of 2010. Nanny tax is not due for any employees who are under age 18, your spouse, your child under age 21, or in most cases, your parent.

Things You'll Need

  • Calculator
  • Payroll records

Instructions

  1. Social Security and Medicare Taxes

    • 1

      Discuss with your nanny whether her portion of the Social Security and Medicare tax will be deducted from her salary or paid by you. In nearly all salaried jobs, the tax is deducted from the employee&'s pay, but many people employing nannies choose to pay the nanny&'s portion of the tax as well as their own portion.

    • 2

      Multiply the nanny&'s salary by 0.0765 to find the amount of Social Security and Medicare tax due on those wages. For example, if the nanny makes $300 per week, multiply $300 by 0.0765 to find that the nanny&'s share of the tax is $22.95, and the employer&'s share is an additional $22.95.

    • 3

      Add the nanny&'s share of the tax onto her base wage if you are paying her share instead of deducting it from her wages. For example, if she is making $300 per week, and you are paying $45.90 to include both shares of Social Security and Medicare tax, add her share of $22.95 to find that her wages for tax purposes are $322.95 per week.

    Federal Unemployment Tax

    • 4

      Add up your nanny&'s wages during each calendar quarter of the year. If the wages total $1,000 or more during any quarter, then you owe federal unemployment tax on up to $7,000 of the nanny&'s annual wages.

    • 5

      Sum the nanny&'s wages for the entire year. If they are less than $7,000, then use her wages in your calculations. If they are greater than $7,000, then use $7,000 in your calculations.

    • 6

      Multiply the nanny&'s wages or $7,000, whichever is less, by 0.008 to find the federal unemployment tax owed. You must pay this amount yourself rather than deducting it from the nanny&'s wages.

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