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Nanny Salaries & Taxes Tips
Nanny Agencies and Payroll Taxes
In some cases, a nanny's employment is handled through a nanny agency. Nanny agencies may be responsible for issuing paychecks to their nannies. In this case, the families are responsible for paying the nanny agencies. Then, the agencies are responsible for paying the nanny payroll tax. However, if you do not pay a nanny agency directly for your nanny, you are responsible for paying nanny taxes, including Social Security, Medicare, federal unemployment, and state employment and disability.
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Nanny Tip: Figuring Out a Reasonable Nanny Salary Scale
You don’t let your nanny visit the nanny next door, do you? Because, you know what? They’ll talk. So, if you’re not paying a nanny salary anywhere in the vicinity of other people in the neighborhood, you're going to have some explaining to do.
There really isn’t any set nanny salary standard. It pretty much depends on where you live and whether you’ve hired a live in or live out nanny. If you’ve advertised nanny positions through online nanny placement agencies, you’ve probably been reminded on more than one occasion that as professionals, nannies should reserve a fair pay.
That said, there’s no strict guideline to follow. If this is the first time you’ve had to consider nanny salaries, follow these guidelines to get you started:
1) Find out what people in your town are paying nannies and take an average of that number.
2) Next, write that average down and add a few dollars below and a few dollars above so that the figure is now part of an hourly wage range.
3) Jot down notes next to the figures as to what job qualifications and experience should match which hourly rate. For example, you may put someone with considerable experience and professionalism at the top of the scale. Someone with little or no nanny experience might start at the bottom of the scale, but with room for advancement.
4) Finally, consider any benefits you’d like to offer and whether you’d offer them right away, as incentive after a “probationary period”, or gradually over time.
This is probably the fairest way to come up with a nanny salary scale that’s proportional to what others are offering nearby.
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Required Nanny Payroll Taxes
Employers who pay their nannies more than $1500 per year are required by the federal government to pay taxes on that person. Payroll taxes consist of the following items:
Social Security-You must match the 6.2% of Social Security tax that is paid by the nanny for up to $94,200.
Medicare-You must match the 1.45% of Medicare tax that is paid by the nanny with no limit or stipulations on wage amounts paid.
Federal Unemployment Taxes-You must pay a net tax of 0.08% for your nanny. This is based on you paying 6.2% taxes on the first $7000 and then you receiving a tax credit of 5.4% after that amount has been reached.
State Employment and Disability Taxes-You will need to check with your state's tax department for recommendations on how much to withhold.
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Nanny Tip: Non-Unionized Nanny Positions
As a full or part-time nanny, it’s important to remember your rights. Nannies aren’t unionized; they don’t have an organized agency rallying for their pay, benefits, or work hours. That means it’s up to you to keep savvy about how nanny positions are evolving. For example, some people opt for nanny share positions. You, the nanny, get to work for two families. But don’t expect the same pay as you’d get working for just one family. If you’ve been working for one family all along and suddenly the “nanny share” suggestion comes up in conversation, expect to get more pay. It’s a simple formula really; more children to watch + more housekeeping duties = more pay.
Whether you’re new to nanny positions or you’re a long-time pro, always ask to use a nanny contract. Choosing to work with a family who refuses to create a nanny contract is completely up to you, but there could be some pitfalls down the road. The last thing you want to do is wind up in a “he said; she said” situation. Know what the average nanny payroll looks like in the neighborhood, town, or city. Make sure you have a clear understanding of what’s expected of you on a day-to-day basis. And finally…make yourself heard if you have any questions or concerns before accepting any nanny positions.
Remember, there’s no union rally cry behind you, so raise your voice.
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Nanny Tax Calculator
You can access several nanny tax calculators on-line. These tax calculators will help you determine how much tax you should pay the federal government for your nanny's employment. You must pay nanny taxes on any amount over $1500 that you pay your nanny per one calendar year. Nanny tax calculators typically require the following information:
Pay Date
Weekly Gross Wages-Amount paid nannies per week before taxes are withheld.
Pay Schedule-How often will your nanny be paid.?
Nanny Withholding Rate-Single or married withholding at the higher single rate or married.
Withholding Federal Income Tax-Answer yes or no.
Withholding State Income Tax-Answer yes or no.
State of residence.
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Preparing Nanny Taxes
If you have decided to do the taxes for the nanny salary, consult IRS publications 926 and 15. These explain the federal laws and tax forms. IRS estimates it takes 8 hours to complete federal nanny tax forms. Also contact your state revenue department for information about the state income tax laws and forms. Finally, you should contact your state department of unemployment regarding their filing requirements for nanny taxes.
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Virginia Nanny Agencies
A family who wishes to employ a Virginia nanny should keep the following points in mind before beginning the hiring process. These points should be addressed in a nanny contract as well to protect the interests of the family and the nanny. Each party should be given a copy of the signed agreement before the Virginia nanny begins her new job.
Hours of Employment-Will the Virginia nanny be full or part time, live in or live out?
Salary-Keep in mind that employers are required to pay a nanny tax on any salary over $1500 in a calendar year.
Duties-Will her duties include light housekeeping?
Benefits-Will you provide insurance, paid vacation leave, paid holidays, sick days, and a car?
Overtime-How will overtime pay be handled?
Living arrangements-If the Virginia nanny is a live in nanny, what living accommodations will you provide for her?
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FICA Nanny Tax Rules
The FICA nanny tax rule involves 15.3% of a nanny's wages. This percentage should be divided up between the nanny and the employer, with each one paying half or 7.65% of the total amount. The half which the nanny is responsible for paying can be paid one of two ways.
An employer can withhold the nanny's 7.65% tax from her paycheck. This is the same method an employer uses for his or her employees.
In most cases involving domestic help, however, the employer may pay the nanny in cash without withholding any of the nanny tax. If this is the case, you are responsible for paying the entire 15.3%.
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Paying FICA and FUTA for Nannies
FICA and FUTA nanny taxes should be a part of every employer's tax liability. The Household Employment Tax form, which is Schedule H, allows an employer to report and calculate both of these nanny taxes. Once the taxes are calculated, the numbers can be put on the 1040 tax form, and Schedule H is also filed with the tax return. For those who choose not to withhold taxes from nannies' wages, they must add 7.65% to a nanny's taxable income. If you still aren't sure about the exact amount of nanny taxes to be paid, you may want to consult your accountant or a reputable tax service for help. If you fail to pay the adequate amount of nanny taxes, you could be charged an interest penalty.
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Nanny Tax Cost for Employees
Most of the time, a single nanny with no children will take home about 80% of her gross nanny tax earnings. For example, a nanny salary with earnings of $350 per week would clear about $280 after taxes. The specific nanny taxes withheld from the employee's wages vary based on the employee's marital status and number of dependents.
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Average Cost of Nanny Tax
Nanny taxes cost less than you think. The employer's nanny tax cost about 10% of the employee's salary. For example, a nanny salary with earnings of $350 per week would cost $35 per week. The good news is that tax credits can offset this cost.
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Calculating Nanny Taxes
To give your a nanny salary you need the following - weekly gross wages, pay frequency, withholding rate (single or married) and withholding allowances. For completion of your nanny tax figure in if there will be Federal and State taxes taken out. You might want to consider hiring a personal tax advisor to handle all of your questions regarding your nanny taxes. There are also online programs that will help you calculate the amount of money that you need to with hold from your nanny's paycheck.
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Various Nanny Wages
A nanny salary (not taking in account nanny tax) for 18 to 20 years old with less than 2 years child care experience is US $275-$350 live-in and $8 to $10 hour live-out. 21 years or older with 2 years child care experience is US $350-$500 live-in and $8-15 hour live-out. Two or more years of nanny experience and/or a college degree in a child related field is US $400-700 live-in and US $9-15 hour live-out.
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FUTA Nanny Tax Rules
The FUTA nanny tax isn't as expensive as the FICA tax. Generally, FUTA is required based on the first $7000 of a nanny's wages for a year. This rule applies, however, only if you pay $1000 or more in wages in any calendar quarter of the current or previous year. This nanny tax rule only applies to nannies who aren't your parent, spouse, or your under-the-age of twenty-one child. It is important that you pay your state unemployment tax by April 15 each year. In doing so, your nanny's FUTA will typically only be 0.08%. However, for anyone who fails to pay the state unemployment tax, the FUTA for nannies is 6.2% of their wages.
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Paying Nanny Tax
There are two strategies to reduce your nanny taxes: Flexible Spending Accounts and Dependent Care Tax Credits. Finally, if you don't pay the tax the IRS will catch you. Your income tax return asks "Did you pay anyone working in your home $1,300 or more?" If you mark off yes because you pay a nanny salary, the IRS will look for your nanny tax payments. If you say no, you compromise your federal income tax return and may be audited.
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What is a Nanny Tax?
A nanny tax is defined as the tax you will pay to the federal government to nannies. Nannies are considered household employees, just like a gardener, housekeeper, or other person in your employ would be. Therefore, you must pay taxes on this person, and this is a federal requirement. You must pay a nanny tax if you pay your nanny more than $1500 in a calendar year. However, if you pay a nanny less than $1500 in one calendar year, you are not required to pay a nanny payroll tax.
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Software for Nanny Taxes
Nanny Taxes are a fact of life for household employers. Take the chore out of complying with nanny tax laws by using a tax software payroll program designed specifically for the employer. It calculates all federal and state withholding taxes for the current tax year for the nanny salary as well as print pay stubs and liability reports. The software will even print your payroll data directly on W-2 forms, making your year end tax reporting obligations a breeze.
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The Nanny Tax
When you hire someone to work in your home the government considers you an employer. Therefore, when you pay a nanny's salary you are responsible for paying nanny tax. Social Security, Medicare, state and federal unemployment tax and federal and state income tax are include in what is commonly known as "nanny taxes".
