What is this nanny tax??

September 8, 2008 7:11 AM

We just hired a nanny. It's costing me half my take home but we think our only solution for day care. Is there anything we should know about taxes or anything else for that matter???
posted by beccaj to Work & Money (4 answers total)

Best answer: Does your employer offer a FSA? If you are using a nanny service that accepts debit card, perhaps signing up for $5000 or whatever your yearly cost of the nanny service might be, get the card, pay it off, and then spend the remainder of the insurance year paying it back, pre-tax! A little more information about FSAs via wiki. Breakdown: Pretax dollars that can be used for medical supplies/co-pay/etc, as well as child care.
posted by banannafish at 7:28 AM on September 8, 2008 [1 favorite]

This advice is perhaps too late for you, but just to put it out there:

Maybe it depends on where you're located, but we found that hiring an au pair was much cheaper than hiring a full-time nanny. After a year and a half, we're extremely happy with the experience. Au pair rates are set by the state department (essentially minimum wage minus the value of room and board).
posted by larsks at 7:32 AM on September 8, 2008

I used this page to figure out what to do. Essentially, if you will be paying more than $1,600 in a year, you need to withhold tax. I end up withholding 7.65% from each paycheck. You don't need to, but if you don't I think you have to pay it yourself.
posted by procrastination at 7:34 AM on September 8, 2008

Best answer: IAAL, and I found the nanny tax rules to be maddeningly complex and difficult to deal with. Yes, you can get reimbursements from the FSA, but that won't help you at all with the taxation. Here's what I eventually did: I consulted my CPA, I consulted my financial adviser, and then I went to the IRS tax guidance on the topic. Even that won't really tell you what you're on the hook for. This nanny tax calculator will get you closer, but bear in mind there are other issues that could further complicate you: your state may/probably does require you to pay unemployment tax, and you could have a state nanny tax on top of that, and at the end of the day you need to know what you're doing or you could be in deep trouble. In my case, there were several other layers of complications, but I won't bore you with that.

In short, good luck. Talk to a professional.
posted by norm at 7:48 AM on September 8, 2008