Calculate Nanny Tax 2014: All questions answered

Have you heard about "Nanny Tax", and want to learn more about how to calculate it? With the present article, we are going to thoroughly explain, in simple words, the so-called Nanny Tax, and also try to clear up all the hassle that surrounds it.

So let's bring up as an example, two happily married parents where both of them are working full/part-time or searching for work. Also, they have a younger-than-13 years old child and don't have the privilege of a family member taking care of him/her, during the hours that both of them are away for work. For that reason, they are forced to the decision of hiring a nanny.


Traditional ways of finding a "high quality" and responsible nanny are mouth-to-mouth recommendations and signing up with nanny agencies, with the latter taking care of all the paperwork and taxwork required to be done. But, nowadays, a large percentage of families find reputable local nannies from child care websites, where caregivers can find work and parents find nannies and babysitters, respectively.

The search of a reputable and well-balanced nanny, who is equipped with the required skillset to protect and smoothly take care of the kids, is a really time-consuming and stressful process. For this reason, after much research the above parents of our example having finally found the perfect match for their kids' care, the last thing they want to spend time and energy on are the extra tax obligations that they not-knowlingly "activated" the moment they "hired" the above nanny.

And that's the exact point that Nanny Tax comes into play. The moment you hire a nanny or a  babysitter to take care of your children, the I.R.S. considers you to be a Household Employer, and the nanny to be your Household Employee. Generally, any household worker (gardener, housekeeper, elderly care giver, etc) is considered as your household employee when you both control what work is done, and how it is done. If at least one of the above does not come in effect, then the worker is considered to be self-employed and you are not obgliged to pay any taxes in behalf of him.

So, now that you hired your nanny to take care of your beloved child and you both decided upon a $1,900+ annual wage, you are characterized by the I.R.S. as a Household Employer, and thus, you are required to withhold and pay the nanny tax, which consists of Social Security and Medicare taxes, as also as Federal Unemployment Tax (if you pay your care giver cash wages of more than $1,000 in a quarter). Also, depending on the state that you are residing in, you may be obliged to pay an extra state unemployment tax.

If we sum up all the above nanny taxes, we are left with an average 9% bump to the initial pay towards your hand-picked nanny. It may not sound like a big deal, but the amount can become a hefty one. If you wish to accurately calculate the exact amount of nanny tax based on payroll and state, please use our Nanny Tax Calculator found on the homepage.