Did you hire a nanny or full-time babysitter to care for your children over the summer break? If so, you may owe a “nanny tax” by the end of September.
If you paid a caregiver $2,000 or more in a calendar year, that individual is considered a household employee, similar to a housekeeper or gardener. As such, according to the IRS, at least Social Security and Medicare taxes should be withheld from his or her paycheck. If you paid a caregiver at least $1,000, you are responsible for withholding federal and state unemployment taxes from his or her wages.
Reaching $1,000 or even $2,000 in child care wages can be easier to reach over the course of the summer than you might think. According to Care.com estimates, babysitters receive an average of $15 per hour and nannies receive $13.91 per hour.
“If they have a full-time nanny over the course of the summer working full time, 40 hours a week, even just for the eight weeks of the summer, they’ve already crossed that threshold,” said Kerri Swope, senior director of Care.com HomePay, in a recent Accounting Today article.
Unlike personal income taxes, the nanny tax and other household taxes are due quarterly. In the case of summer caregiving, this means taxes are due to the IRS by September 30.
Luckily in this situation, nanny tax responsibilities may result in tax benefits from the IRS to defray childcare costs. Families can use a free nanny tax calculator to estimate payroll taxes and tax benefits.
If you owe back taxes for nanny services, you also have the option to consult with an experienced tax attorney.