What is a Nanny Tax?
How Does a Nanny Tax Work?
For example, let's say John and Jane Doe hire Sally Smith to take care of their two preschool-age children while they are at work. Over the course of the year, they pay Sally Smith $15,000.
Each year, the IRS announces the minimum income on which nanny tax applies. In most cases, if John and Jane have their 17-year-old son or other family member watch the kids, the tax also does not apply.
Why Does a Nanny Tax Matter?
Nanny tax liabilities can come as a surprise to many working parents, and they should take the time to educate themselves about their responsibilities when hiring domestic help. Typically, the nanny tax is tacked on to a taxpayer's tax liability when filing income tax, though failure to pay the nanny tax on a timely can trigger interest and penalties from the . Also, states have their own conditions and requirements regarding the nanny tax.
It is important tothat the nanny tax can apply to any domestic help: gardeners, housekeepers and other people who are employed in your home (regardless of whether they are caring for your children).