GreatAuPair has established qualified nanny tax preparation partners in the U.S. and the U.K. to help you with household employee and nanny payroll taxes.
|Q:||Do I have to pay employment taxes for my nanny?|
|A:||If you hire a U.S. citizen in the U.S. that will be paid more than $1,700 per year, yes, you are required to pay all applicable state and federal withholding taxes. The taxation limits vary by country, but most all nanny salaries will be within a taxable range.|
|Q:||Do I have to pay employment taxes for my Au Pair?|
|A:||No, not if you hire an international Au Pair that comes to your country on a visa or permit allowing them to work through a government authorized Au Pair Program.|
|Q:||Is my nanny a Household Employee or an Independent Contractor?|
The IRS has ruled definitively that nannies are employees of the family for which they work. Many people, including some accountants, have an inaccurate understanding of how to distinguish between independent contractors and employees in the household employment realm. Unfortunately, misclassification can be an extremely expensive mistake for the family.
|Q:||If I hire a nanny, what employee taxes need to be withheld each pay period?|
|A:||Your employee’s taxes usually range from 12-15% of gross wages. These include:
By law, employers are required to withhold Social Security and Medicare taxes from their employee’s salary each pay period. Income taxes are optional, but highly recommended to help your employee avoid a large tax obligation at year end.Note: Au Pairs are generally not subject to Social Security & Medicare taxes since it is expected that they will not retire in the United States.
|Q:||As an employer, do I need to budget for employment taxes?|
|A:||In the case of nannies, yes. Household employers can expect to pay the following employment taxes:
Good News! The employer tax obligation can be largely, if not completely, offset by tax breaks. Depending on the amount of the annual wages, some families even come out ahead after the tax breaks. To calculate your employer costs, visit the free payroll tax calculator at Breedlove & Associates or call them at 1-888-273-3356 to receive a free consultation courtesy of GreatAuPair.
Note: Household employers of au pairs are usually exempt from employer taxes.
|Q:||Do I have to pay overtime?|
|A:||According to federal law, household employees are entitled to overtime pay for all hours worked over 40 in a 7-day workweek (unless they are Live-In Employees - see note below for details). Overtime must be paid at 1.5 times the hourly wage. If a household employee is paid a salary, overtime should be addressed in the contract by breaking the salary into two pieces: the regular rate and the overtime rate. For example, an employee and family agree upon a gross salary of $600 per week for a 45-hour workweek. The regular rate for the first 40 hours is $12.63 per hour; the overtime rate for the remaining 5 hours per week is $18.95 per hour; and the total weekly salary is $600.
Note: Live-In Employees (nannies or au pairs) generally do not have to be paid time-and-a-half for overtime hours, but they are entitled to the regular wage for every hour worked. There are a few local exceptions.
|Q:||What are the requirements for vacation, holidays and sick days?|
|A:||Generally, paid vacation, holidays and sick days are not required by law. Additionally, overtime is not required for holidays worked. These optional benefits are to be agreed upon as part of the employment agreement.
Note: A few municipalities have special laws for paid sick leave. Please call Breedlove & Associates at 1-888-273-3356 to receive an individualized consultation, compliments of GreatAuPair.
|Q:||What is Workers’ Compensation?|
|A:||Workers’ Compensation is not a tax; it’s an insurance policy that provides financial assistance for lost wages and medical expenses in the event of injury or illness resulting from the workplace. Every state has a workers’ compensation system, which entitles workers to receive prompt payment of benefits with a minimum of legal formality and expense. In return, the employee gives up the right to sue for any injuries from work-related accidents - regardless of fault. Some states require household employers to carry a workers’ compensation policy and some do not. For more details, courtesy of GreatAuPair, call 1-888-273-3356 or check with your state’s Workers’ Compensation office for details.|
|Q:||Are there tax breaks if I offer health insurance?|
|A:||Yes. When a household employer contributes toward health insurance premiums, these dollars are not considered taxable income. Neither the employer nor the employee is required to pay taxes on these dollars. Families can choose to pay the healthcare premium directly to the health insurance company or pay indirectly by giving these dollars to their employee in the form of a reimbursement. In this case, the family must keep a copy of a current health insurance card on file for proof of a current insurance policy.|
|Q:||Can I run my nanny’s payroll through my own business?|
|A:||No, this is illegal. Here’s a simple explanation of the law: All businesses are allowed to take tax deductions on employee payroll. The logic is that employees are direct contributors to the success of the business, and therefore, the owner is allowed a “tax break” on a portion of total payroll to offset some of this expense. A nanny does not directly contribute to a business; therefore, it is illegal for a business to receive any kind of “tax break” on her payroll. A nanny is considered a contributing member of the household; therefore, a family is entitled to take a “tax break” on her payroll as a childcare expense, instead.|
|Q:||What is the process for handling payroll and taxes?|
|A:||The payroll and tax process is quite detailed. Here’s an overview of what’s involved:
Note: Comprehensive services offered by Breedlove & Associates can make this process simple for a small quarterly fee.
Full-Service Nanny Tax Preparation for Household Employers
Breedlove & Associates (1-888-273-3356) is GreatAuPair’s U.S. partner, the nation’s leader in household employment tax and payroll services. Their comprehensive and affordable “nanny tax” service has eliminated paperwork, minimized legal risk, maximized tax breaks, and generally made life easier for more than 16,000 families across the U.S. since 1992. Breedlove & Associates can help you:
NannyTax is GreatAuPair’s U.K. nanny tax partner that provides an efficient, inexpensive payroll service for an annual subscription fee.
NannyTax will help you: