Nanny taxes

[NancyJ_redo]

Does anyone know how to pay a nanny on the books (i.e. with taxes calculated and withheld)? I'm sure a CPA could help me out, but I'd rather avoid that added expense if I can. If there's a weblink or other info somewhere that can help I'd greatly appreciate the info.

[brubeck]

There are separate issues for federal and state. You will have to contact your state and figure out what they require.

Federally, you have to apply for an Employer Identification Number. Then when you pay your nanny you have to withhold the appropriate taxes (SS, Medicare, etc.). You make the withholding payment to the feds once a year. It is a separate form for household employees that goes with your normal IRS 1040 return. For us the payments we make on the withholdings usually washes with the child care tax credit.

You also have to have the nanny fill out a couple of forms when she is hired, including one from the INS (stating that you have verified her legality to work) and one stating whether or not she wants income tax withholding too. My babysitter doesn't do the tax withholding so I'm not sure how that would work.

As I said above, your state probably also has requirements. For California I had to get a state employer ID # and I have to file a quarterly statement saying how much I paid her (the feds don't want this, they're happy with an annual one.... weird). I also have to withhold for California stuff like unemployment and pay that with a spearate form and check each year (not part of the normal tax return). So you can see that for me the more complicated stuff is with the state!

Go to the web site for your state government and nose around. You'll probably find links to tax sites and then you can do a search for household employees. You can also try calling them. Since it's not March/April right now they're not too busy. :)

This is off the top of my head. If you want specifics (like the form names, etc.) let me know.

[Dcclerk]

Helen, I would LOVE form names and things like that in California. We just got everything set up for federal taxes but the California state stuff is giving me a headache. TIA!

And Nancy, I just checked out a site that seems to give all of the details that you need. Of course, it also looks like they will do it for you at $120/ year and that seems pretty darn reasonable to me.

http://www.householdemploymenttaxes.com/CA/index.shtml

I have no idea if they are any good, but it sounds like an interesting option.

[NancyJ_redo]

Helen - thanks so much for the info, that's very helpful. And I'd also love the form names and CA-specific info since I'm in CA.

And Kerry, thanks for the link. I'll check it out today when I have a break. Maybe we can navigate the complexities of the CA rules together :)

[Zansu]

Turbo Tax has a calculator on its webpage:

http://www.turbotax.com/calculators/index.html

under Home & Family: Nanny Tax

And they have an info sheet also:

http://www.turbotax.com/articles/TaxesonDomesticHelp.html

I can't tell if the State-specific versions of TurboTax have all of the forms you need. If you're interested, sent Intuit an email. Their CS is usually very responsive.

HTH

[lisaE]

Hi!
As the wife of a CPA, I feel obligated to tell you that any added expense you incur from using a CPA, if you find a good one, will be worth it come tax-time. Many of our friends have used TurboTax or something similar over the years, and then let my husband go back later and amend their returns to see if he could get them a bigger return and he ALWAYS does. He got one person I know (whose return was prepared by a different CPA) over $2300 back!
Not trying to harass you or imply that you can't do it alone, I have just been trained to add my two cents whenever I hear of someone not wanting to use a CPA. Just something to consider.

Lisa

[brubeck]

Actually once you are set up it is NOT hard to do. It's not worth $120 per year since I probably spend one hour on this stuff per year total. The hard part is getting the info and getting started. FYI I am a CPA, although I'm not very strong in tax. :)

I ran through my files and here is the information I gathered:

In California the Em ployer # is called the Employer Account #. If you pay less than $750 per quarter to your nanny you have no tax issues. If you pay $750 to $1,000 per quarter you must pay disability on the nanny's earnings and report the wages. If you pay more than $1,000 per quarter you must do all this and also pay unemployment tax and training tax. We are in this last categry and it totals to 4.4%.

The form to file quarterly is the DE3BHW. Annually it is the DE3HW. Once you have filed these forms for the first time they will send them to you automatically when you need them. I don't remember what the form name is to request an account #, but it's on the web site.

For California info go to www.edd.ca.gov/taxfaq.htm. They have local phone numbers. For our area code it is (510) 577-2396.

Federally you need form SS-4 to request the Employer ID #. I believe the INS form is form I-9. The nanny needs to fill out a W-4 to state if she wants tax withholding or not, and you have to file a W-2 and W-3 for her at the end of the calendar year. Again, once you file these forms once they will mail them to you automatically next year. The W-4 only needs to be filled in once. The W-2 and W-3 ONLY have to be sent to the federal govt. The state govt doesn't need them.

You will pay FUTA if you pay more than $1,000 per quarter. You have to withhold Social Security and Medicare: 7.65%. You also have to fund this same amount yourself (on your tax return). On your annual personal tax return you will fill out a Schedule H for household employment taxes to figure out how much you need to remit to the govt (both the withholdings and the 7.65% you pay yourself).

You can get the federal forms by going to the IRS web site and requesting them, and/or calling their 800 number. I believe the number to request the INS form is 1-800-870-3676.

Hope this helps you out!

[NancyJ_redo]

You are awesome! Thanks so much for taking the time to provide such detailed info, this will undoubtedly save me a lot of time trying to figure it all out from scratch.

[McQ]

Helen's post was really good. Wish I had thought to post when I was setting my stuff up.

One other thing to add is that I have my employer hold an additional amount of taxes from my paycheck to cover my portion and the withholding amount of the federal taxes.

Allison
~ mommy to Declan 3.24.03

[loewymartin]

We use "Nanny Pay" software to pay our nanny. I can do the quarterly statement report and fill in the state tax forms using that. I think most of your questions were already answered above, but I wanted to add this!

Michelle - Mom to Alia born 5/16/02