Nanny Tax

If you hired someone to do household work and that person is your employee you are required to pay social security and Medicare taxes. The worker is your employer if you can control not only what work is done, but how it is done. It does not matter if that person works part time or full or is paid on an hourly, daily, weekly basis or by the job.

When you hire a household employee to work on a regular basis, you and the employee must complete the U.S. Citizenship and Immigration Services Form I-9, Employment Eligibility Verification. Acceptable documents to establish identity and employment eligibility are listed on Form I-9.

If you pay cash wages of $1,500 or more in 2006 to any one household employee you are required to withhold and pay social security and Medicare taxes. The employees share is 7.65% of the total wages. You would match that amount for a total of 15.3%.

If you pay cash wages in excess of $1,000 in any calendar quarter to the household employee you are required to pay federal unemployment tax.. The tax is usually 0.8% of cash wages up to $7,000. Check with your state unemployment office to see if you owe state unemployment taxes.

Only cash wages count for social security and Medicare taxes. Any noncash wages you pay do not count as social security and Medicare taxes. Transit passes, up to $105 per month, are not considered wages.

If you prefer to pay your employees social security and Medicare taxes from your own funds, do not withhold them from your employee’s wages. The social security and Medicare taxes you pay to cover your employee’s share must be included in the employee’s wages for income tax purposes only.

You are not required to withhold federal income tax from wages you pay a household employee. You should withhold federal income tax only if your household employee asks you to withhold it and you agree. The employee must give you a completed Form W-4, Employee’s Withholding Allowance Certificate.

When you file your 2006 federal income tax return in 2007, attach schedule H (Form 1040) to your Form 1040. Use Schedule H to figure your total household employment taxes (Social Security, Medicare and Federal Unemployment taxes). Add these employment taxes to your income tax and pay by April 16, 2007.

For more information download IRS Publication 926 from: www.irs.gov