Back-to-School Season Means Catch-up Time for Nanny Taxes

Families who have been paying a babysitter or nanny over the summer to provide childcare may be able to cut back now that school is in session, but that doesn’t mean they can avoid the so-called “nanny tax.”

“Families should make sure they tie up all those loose ends before they move on with the rest of their year so that it doesn’t make tax time come April even more complicated than it has to be,” said Kerri Swope, senior director of HomePay. “One of the ways to do that is making sure they are paying attention to how much they paid that caregiver over the course of the summer, because that is one of the key indicators of whether they are going to have tax responsibilities or not.”

For example, if the family paid a caregiver $2,000 or more, the IRS will then consider the caregiver to be an employee.

“The IRS considers that babysitter or nanny that was working in the home for the family over the course of the summer to be the employee of the family, which makes the family a household employer,” said Swope. “That’s one important thing for the family to be thinking of and makes them responsible for having to withhold and pay taxes on the wages they paid to that caregiver throughout the summer. If they paid more than $2,000 to that nanny over the course of the summer, the IRS says they must withhold at least Social Security and Medicare taxes from that caregiver’s paycheck. Then they are also responsible for matching an equal amount of Social Security and Medicare as the employer.”

In addition to the $2,000 threshold, there is also a $1,000 threshold.
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