Please help me understand State and Fed taxes for a stay-at-home nanny
January 25, 2012 12:23 PM Subscribe
It looks like we should file taxes on/for our in-home nanny, but we're not sure where to start learning about all we need to know. We're in California, and our nanny started in January, 2012. More details inside.
According to the 2011 Schedule H instructions, because we'll be paying our nanny more than "$1,700 or more of cash wages," we'll need to files a Form W-2. We pay our nanny $9 per hour, usually for 9 hours per day, and 4 to 5 days per week. He started mid-January, and will work until the end of the school year, when my wife will be home.
From this other AskMe, it looks like I could be using a FSA and saving some money, but this is all new territory to me. Up to now, our household has only been myself and my wife, and she has done our taxes through TurboTax or something similar. Now we have a son, and his nanny, and I'd like to know more about federal and state taxes in general, and our options for taxes with our nanny specifically. Thanks!
According to the 2011 Schedule H instructions, because we'll be paying our nanny more than "$1,700 or more of cash wages," we'll need to files a Form W-2. We pay our nanny $9 per hour, usually for 9 hours per day, and 4 to 5 days per week. He started mid-January, and will work until the end of the school year, when my wife will be home.
From this other AskMe, it looks like I could be using a FSA and saving some money, but this is all new territory to me. Up to now, our household has only been myself and my wife, and she has done our taxes through TurboTax or something similar. Now we have a son, and his nanny, and I'd like to know more about federal and state taxes in general, and our options for taxes with our nanny specifically. Thanks!
Some basics. Info you'll need as a household employer in California.
Regarding FSA's, ask your (or your wife's) employer if they can offer you a flexible spending account. Basically, this is a way you can minimize your taxes by setting up to $5K of your pre-tax gross earnings into an account, which can be used to reimburse you for your dependent care expenses. Pre-tax means you won't be double taxed (you won't have to pay federal, social security or state taxes) on up to $5K of the funds being used to pay your nanny, It can be a significant savings.
Without an FSA, you wind up paying taxes as an employee at your job. And then you'll have to pay taxes for having a household employee.
Your annual gross income will be reduced, just as it would for any other pre-tax deduction, such as insurance. This means your W2 will reflect less income, which will in turn affect the amount you pay in taxes at the end of the year. Turbotax has options for listing household employees, so you can probably still use it to process your end of year taxes.
posted by zarq at 1:03 PM on January 25, 2012
Regarding FSA's, ask your (or your wife's) employer if they can offer you a flexible spending account. Basically, this is a way you can minimize your taxes by setting up to $5K of your pre-tax gross earnings into an account, which can be used to reimburse you for your dependent care expenses. Pre-tax means you won't be double taxed (you won't have to pay federal, social security or state taxes) on up to $5K of the funds being used to pay your nanny, It can be a significant savings.
Without an FSA, you wind up paying taxes as an employee at your job. And then you'll have to pay taxes for having a household employee.
Your annual gross income will be reduced, just as it would for any other pre-tax deduction, such as insurance. This means your W2 will reflect less income, which will in turn affect the amount you pay in taxes at the end of the year. Turbotax has options for listing household employees, so you can probably still use it to process your end of year taxes.
posted by zarq at 1:03 PM on January 25, 2012
A quick google search also turned up this page at (of all places) about.com, which might also be helpful.
posted by zarq at 1:06 PM on January 25, 2012
posted by zarq at 1:06 PM on January 25, 2012
I personally use Paycycle (now part of Intuit) to calculate all the taxes, but I know people who calculate it themselves.
In addition to Federal and State tax issues, filing with California EDD, etc., you need to check with your homeowner's/renter's insurance and make sure you are covered for Worker's Comp. You need to be covered for Worker's Comp, but EDD doesn't make that as clear to you when you register with them as they might. The penalties for not having Workers Comp are pretty serious, and it's usually not terribly expensive to add (I think we had to add a rider to our insurance that added $150 to the annual premium.) This is a completely separate thing from being on or off the books.
When our nanny slipped and fell, hitting her head on the corner of a dining chair and passing out, and had to go to the ER for stitches and so forth, Worker's Comp picked up the medical bills, which was a really good thing.
posted by ambrosia at 1:27 PM on January 25, 2012
In addition to Federal and State tax issues, filing with California EDD, etc., you need to check with your homeowner's/renter's insurance and make sure you are covered for Worker's Comp. You need to be covered for Worker's Comp, but EDD doesn't make that as clear to you when you register with them as they might. The penalties for not having Workers Comp are pretty serious, and it's usually not terribly expensive to add (I think we had to add a rider to our insurance that added $150 to the annual premium.) This is a completely separate thing from being on or off the books.
When our nanny slipped and fell, hitting her head on the corner of a dining chair and passing out, and had to go to the ER for stitches and so forth, Worker's Comp picked up the medical bills, which was a really good thing.
posted by ambrosia at 1:27 PM on January 25, 2012
I work as a nanny in California and the family I uses service called Breedlove to calculate all important data. I get a personal check (net pay) and an email with a pay stub (withholdings breakdown etc.) I just received my appropriate tax papers in the mail and also had access to them a couple weeks ago online. I think it is very easy for my employer to use the service and I have always had an easy time with it also. I'm not sure what the fee for the employer is. I just know after 3yrs they haven't changed arrangements.
posted by Swisstine at 1:37 PM on January 25, 2012
posted by Swisstine at 1:37 PM on January 25, 2012
Breedlove was too much money for what it did, at least in my opinion.
Also, I'm happy to share our nanny contract if you want.
And YES, do the FSA! It is only $5000, but hey, it is better than nothing.
posted by k8t at 7:08 PM on January 25, 2012
Also, I'm happy to share our nanny contract if you want.
And YES, do the FSA! It is only $5000, but hey, it is better than nothing.
posted by k8t at 7:08 PM on January 25, 2012
Response by poster: Thanks for all your feedback so far. One question: what if my nanny doesn't make enough to file taxes?
posted by filthy light thief at 6:45 AM on January 26, 2012
posted by filthy light thief at 6:45 AM on January 26, 2012
Response by poster: And our nanny is a friend of ours who has a few odd jobs but no steady work ATM. He's trying to find full-time work, but his field is pretty limited around here.
posted by filthy light thief at 6:46 AM on January 26, 2012
posted by filthy light thief at 6:46 AM on January 26, 2012
"We pay our nanny $9 per hour, usually for 9 hours per day, and 4 to 5 days per week" for ~6 months.
That sounds like full-time work and enough to pay taxes to me.
You could, alternatively, do all of this under-the-table. But that means that you won't be able to use FSA money or take the childcare credit on your taxes. But LOTS of people do this.
posted by k8t at 7:26 AM on January 26, 2012
That sounds like full-time work and enough to pay taxes to me.
You could, alternatively, do all of this under-the-table. But that means that you won't be able to use FSA money or take the childcare credit on your taxes. But LOTS of people do this.
posted by k8t at 7:26 AM on January 26, 2012
For California, a household employer must register with EDD after paying $750 in cash wages to one or more employees in a calendar quarter.
Sounds to me like you will hit that after about three weeks. You need to file. Whether your nanny makes enough to actually pay income taxes is for your nanny to deal with, not you.
posted by ambrosia at 7:50 AM on January 26, 2012
Sounds to me like you will hit that after about three weeks. You need to file. Whether your nanny makes enough to actually pay income taxes is for your nanny to deal with, not you.
posted by ambrosia at 7:50 AM on January 26, 2012
This thread is closed to new comments.
If you want, I can send you our nanny paysheet spreadsheet that calculates tax stuff. Memail me your gmail account.
Here are some steps that you need to take - Tax ID number, etc.
Just to warn you, if you didn't hire your nanny under a contract with all of this specified, you may be in a bit of a challenging situation.
posted by k8t at 12:35 PM on January 25, 2012 [2 favorites]