If you are employing a nanny or caregiver, each pay period you may be withholding taxes, such as Social Security, Medicare, or income tax from your employee’s paycheck.
So what do I do with the withheld taxes?
As a household employer, you must pay these taxes to the IRS in one or more of the following ways:
- (If needed) Have a similar amount withheld from your own paycheck, which your employer will pay to the IRS.
- (If needed) Pre-pay estimated amount via quarterly Estimated Taxes.
- (Always needed) Reconcile final amount in your own yearly Tax return.
Option 3 above is necessary in all cases of household employment where taxes are owed. The final amount is calculated via Form Schedule H which should be included in your usual yearly tax return.
Note some states additionally have state specific taxes that need to be paid directly to the state, typically each quarter.
In what cases do I need to also pay taxes ahead of my yearly tax return?
Options 1 or 2 are necessary in cases where the amount of taxes withheld would cause your tax owed to the IRS with your yearly Tax return to be $1,000 or more that you have not yet paid.
As an example, if your summer time nanny will gross $6,000 from you, the amount of Social Security plus Medicare tax withheld would be $459, and your share of employer taxes would be similar. Say she has $0 federal income tax withheld because her income is not high enough. In this case, you could solely pay the taxes in a lump sum with your yearly tax return.
Now, if you also hire another nanny during the school year who makes $5,000 for care after school and during school vacations. The combined taxes withheld for the year will be greater than $1,000. In this case, the IRS will want that money paid prior to your yearly tax return.
Option 1: Extra withholding
If you’ve determined that more than $1,000 would be owed, there are two options to pay this during the year.
If you (or your spouse if filing jointly) are a W-2 employee, you likely are already getting taxes withheld from your paycheck by your employer. In this case, an easy option is to request your employer withhold an extra amount each paycheck to account for this money, and they will then pay this amount to the IRS on your behalf. Do this by requesting to update Form W-4, Employee’s Withholding Certificate, with your employer at any time of year.
If your nanny’s pay fluctuates each week and you do not know the exact amount of tax that will be paid, that is ok. You will still finalize any additional amount owed or overpaid during the year when you file your yearly tax return.
Option 2: Estimated Taxes paid quarterly
The alternative option if you will owe more than $1,000 in taxes is to pay Estimated Taxes quarterly. This is paid directly to the IRS, due on the following dates.
- April 15, 2024
- June 17, 2024
- Sept. 16, 2024
- Jan. 15, 2025
Estimated Tax Payment can be made online via any of the options at https://www.irs.gov/payments. The DirectPay option allows you to quickly pay without creating an account, while creating an account will allow you to track previous payments. EFTPS is another option geared toward businesses but also can be used by individuals who wish to schedule all payments for the year.
The full IRS guide to Estimated taxes can be found at:
https://www.irs.gov/forms-pubs/form-1040-es-estimated-tax-for-individuals