Do you have a household employee such as a nanny, a caregiver for an elderly relative who moved in with you during the pandemic, or a live-in housekeeper?
You may have hired somebody to help out during difficult circumstances caused by the COVID-19 mess.
Maybe that was a temporary arrangement, or maybe it has turned into a permanent one. In either case, the dreaded nanny tax issue may be in play.
The nanny tax refers to your duty to withhold and deposit a household employee’s share of Social Security and Medicare taxes on wages paid to the employee and also to deposit the employer’s share of those taxes. The employee and employer shares of Social Security and Medicare taxes are collectively called FICA tax.
You may also owe federal unemployment tax (FUTA) on wages paid to a household employee.
Finally, you may be required to withhold and deposit state income tax on wages paid to a household employee, and you may have to pay for state unemployment insurance too. Yikes!
Here, in FAQ format, is what you need to know about the federal tax issues for household employees. For any state issues, you’ll need to contact your friendly neighborhood payroll tax service or tax pro.
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