Nanny Taxes and Withholdings
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I'm looking for someone to help set up payroll and tax documents
for us with our nanny. It seems to be a somewhat specialized task
and we use an out of state CPA for other things so someone
familiar with the laws here would be of great assistance. Does
anyone have someone they like who they can suggest?
I can't recommend a CPA, but I've had great success with
Quicken's Intuit Payroll: https://www.paycycle.com/external/home.jsp
They assist with all paperwork setup, and have been good to
work with (recently they just called to tell me that I
needed to change a form -- nice to have someone tell me
this). It's $20 month for one employee, and unless your
situation is complicated it would probably fit the bill, and
you can still use your other CPA for actual filing of taxes.
-also paying nanny taxes
Our accountant recommended Breedlove so we used them for a few years
while we had a nanny. Their service was good although pricey.
hi. i searched the archives but couldn't find any recommendations for an
accountant who can do the paperwork to pay the quarterly/annual taxes,
social security, etc. for our nanny. any recommendations would be much
appreciated. thank you.
Give Breedlove a call. Everything can be done via phone and internet. It's really easy and
they are very accurate, responsive and nice. http://www.breedlove-online.com/
We use an online service called PayCycle to do the paperwork with all related nanny taxes,
weekly paycheck summaries, vacation/holiday/sick pay tracking, etc. They provide regular
reminders for all of the related tasks and their Customer Support Team has been very
responsive to the few inquiries I've had. It's $19.99/month, which is far less than what my
CPA would charge. I've been very happy with the service. You can see a demo at
A happy customer
My nanny wants to be paid partially under the table to retain
her medi-cal benefits, I'm concerned about an audit, does
anyone else under-report?
concerned tax payer
Probably MOST nannies want you to underreport, and who can blame
them? They are not exactly living ''high on the hog,'' and families
who hire them don't pay their medical expenses, plus they have no
safety net to fall back on (Social security, etc.)
So, I think it is fine and helpful to underreport. You both need
to agree upon what to report (all of the details-- hours
reported, cost per hour reported) and stick to it.
No one loses out.
Doing the same
Many people under-report. Additionally, many people don't report
at all. Make sure all non-reported income is paid in cash, never
with a check.
The second option is to pay for her health insurance, so that you
don't need to worry about audits, and she doesn't need to worry
about qualifying for medi-cal.
The third option is to pay her a living wage over-the-table so
she can afford regular health insurance. This would likely be a
much larger financial responsibility for you.
Weigh your options and see what works best.
I need advice on how to handle an nanny arrangement gone awry.
When we hired our nanny last fall, we made it clear that we
wanted to do everything aboveboard. Now it turns out she gave us
a false Social Security Number. This was the SSN we filed all
the paperwork under, did the withholding with, put on her pay
How this happened: We didn't ask to see her Social Security
card. Instead she showed us a valid alien registration receipt
card with permission to work. But now she told us that she
doesn't have an SSN and doesn't think she can get one because of
something she did after she got the work permission. She didn't
want to talk about the details, but I'm guessing immigration. I
guess she was desperate for a job. (We checked her references,
but I'm now assuming she was paid under the table.)
We only just figured this out because the electronic filing
deadline is end of March. Now we're in a bind. Does anyone have
advice on how to clean up the taxes? I don't think we're legally
at fault, but it looks like a big mess. Do we need to see a
lawyer? Any recommendations?
Though I'm angry about this (and I fired the nanny -- a whole
different source of heartache, since my child loved her, not to
mention scrambling for childcare, oh), I want to try to do this
in a way that minimizes the trouble she'll get into. If state
and federal agencies have her name and address and a false SSN,
will that permanently prevent her from getting a real SSN? From
fixing whatever immigration problem is behind it? Is there
anyone she can turn to for help?
I can't help you much with the legal details regarding your taxes and
your nanny's false SSN, but I encourage you to seek a solution that
minimizes the nanny's exposure to deportation, especially if she has
family here. Looking at this situation from your perspective, I can see
how you would be frustrated and
angry: you were very clear with the nanny, and she lied to you.
However, I know many people who are not legal in the U.S. and who use
false social security numbers to work. Believe it or not, this is very
common. An entire illegal economy buzzes around us. Not just the people
caring for our children, but also mowing our lawns, serving us coffee,
cleaning our homes, etc.
From the nanny's perspective, she was just doing what most of her
friends and family do in order to work in the U.S. Good luck with the
tax trouble, and I hope the nanny can stay under the radar.
I just finished our taxes, and I have learned something about
''nanny taxes'' that I hope will help save some of you time and
We were very concerned about paying the proper nanny taxes, so we
paid Breedlove (an accounting firm specializing in nanny taxes)
$375 to calculate what we should pay quarterly. We dutifully
sent checks to the federal and state government every quarter.
When I did my taxes with TurboTax, it figured out what we owed in
''household employment taxes''--this turned out to be what we had
already paid, over the four quarters, as nanny tax. But it
turned out that we didn't really need to pay quarterly; all that
is is estimated tax, and if you have enough withheld from your
paycheck, you shouldn't have to pay quartly estimated taxes.
Because of this misunderstanding, we are getting a huge tax
refund this year. Next year, we won't bother paying any nanny
taxes in advance; we'll just let TurboTax calculate what we owe
at the end of the year, and assume that it will be covered by
what we've had withheld. This might not work for you if you have
only a minimal amount of taxes withheld from your paycheck, but
you can ask to have more withheld and save yourself the hassle of
dealing with nanny taxes.
Maybe all of this is obvious (or inapplicable) to most people,
but it wasn't to us. And, clearly, companies such as Breedlove
would rather that you not figure it out!
Now wiser about Nanny Taxes
I want to post a correction to what appeared under ''Unsolicited
Good Advice'' in the last issue of the Advice line.
While it is absolutely correct that you can adjust your federal
withholding to include your FEDERAL quarterly payments of nanny
taxes, it is IMPOSSIBLE to do so for California purposes.
California part of nanny taxes is composed of multiple taxes
that are small in amount, but high in underpayment penalties if
not paid on time or underpaid in amount. There is no way to take
care of California payments through increased payroll
withholding, so one does need to either hire a tax service, or
buy a tax software or invest personal time and work with
spreadsheets and booklets to take care of these timely.
Btw, my advice is un-biased - I specialize in income taxes, NOT
Maria U. Ku, C.P.A.
On the website there is an archived discussion in response to
the question of whether there are software packages that assist
in calculating/reporting nanny taxes -- but no one actually
answered the question! Instead, various third-party services
were recommended. For those of us who are planning to do it on
our own, ARE there federal and/or California software packages
available -- and if so, what are they, and did you find them
There is no nanny tax software for state- because you are paying
income tax for nanny, plus disability tax, plus something else,
all going to 3 different state agencies with different filing
dates 4 times per year. The tax calculations are relatively
simple, it's all the paperwork that's confusing! If you go
online to the CA EDD, I think you can ask them to send you
forms. The federal form is probably in regular tax software,
Schedule H or something. I assume there's no software because
it's not a big market. I know one very organized person that
does the state stuff herself, but most dual income families with
nannies end up shelling out for help I assume. The services seem
vastly overpriced, but my regular tax attorney says it would
cost the same for him to do it, becasue of the need for
quarterly filing. This is probably why so many people don't file-
saving money is one thing (10-12% of nanny salary), the hassle
just adds to the insult!
I use a service to handle all of the taxes, SS, Medicare, etc. and I'm very
pleased with them. They do absolutely everything: I give them my nanny's
name, social security number, and number of allowances she wants to claim,
and in return, I receive a payroll form showing me what to withhold from her
check, and the appropriate forms for state and federal everything, completed
in full, with a space marked for me to sign and a note about where to send
the check(s). I am not required to think at all: it's perfect. The service
is called Breedlove & Associates, phone 1-888-BREEDLOVE. They're located in
Texas but have clients all over including California.
Bananas in Oakland has a guide to paying Nanny Taxes. It didn't look all
that complicated, but it did look expensive! For us, it became more than
we could afford very rapidly, even with sharing a nanny. And of course,
sharing makes it more complicated!
By the way, if you live in the Oakland/Berkeley area, you can sign up to
the Bananas newsletter for free (we live in San Leandro, and would have to
pay a small subscription fee). They may be willing to mail you a copy of
the appropriate guides, whether or not you are on their mailing list.
Bananas has a one-sheet summary of what you need to do, including a little
chart that shows how much you'll really pay once you add on the various
taxes. Actually paying the taxes is pretty easy, since most can be paid
when you file your own taxes, using Schedule H (I think). Of course, you
also need to deduct the appropriate amounts from your babysitter's
In my view, he cumbersome part is getting all the forms, since they come
from several different State and Federal agencies. (If anyone has found a
single source packet of all needed materials, I'd sure like to know about
it! It may be that if you use an accountant he or she has such a packet;
or, maybe by this time Bananas has developed one.) In short, I found that
setting up my files was onerous, but once I had everything in place it was
really no problem.
Someone recently asked for information about the procedures for paying
"nanny taxes." My husband and I have been through the terribly
complex procedures and I am happy to discuss them with you. Send me
e-mail at email@example.com. If you have not already done
this, take a look at the IRS website at
http://www.irs.ustreas.gov/prod/cover.html. I found the downloadable
publications on this issue to be pretty clear. I think California tax
dept also has a website you can look at for information but I don't
know the address.
My wife and I recently hired a nanny for our 6 month old son.
Both being CPA's we thought that we could handle the employer tax
issues for household help. We started by downloading Publication
926 from the Internal Revenue Service Internet site. This
document provides good advice about the federal taxes. However,
we were unable to find any good information about the State of
California taxes. Confused by what to do we did some more
research on the Internet. By luck we came across a company at http://www.4nannytaxes.com/default.htm
that prepares all necessary
correspondence with the taxing authorities and will take care of all
withholdings including W-2's and Schedule H. Their services are
priced individually or as a package. Overall, their rates are
Do you pay nanny taxes yourself? I'm looking for some
recommendations on what I need to do to start paying
taxes, both federal and state, for our nanny starting
in Jan. 2002. I'd like to do this myself verses paying
a nanny payroll service or accountant, although I'd like
to hear pros and cons about using a third party. Who
have you used and what is the cost? Is it worth the
hassle factor to do it myself? Do you know of any
software that I can use for keeping track and paying
nanny taxes (Turbo Tax for Nannies???) Thanks!
I just set up an excel spreadsheet and it worked out
pretty well for me. Since I only paid the taxes every
quarter, I had to ''relearn'' what I did each time, so
take notes! I don't think it's that hard and I hear
the cost is kind of steep for someone else to handle
Your nanny needs an SSN, which she/he can get whether
a US citizen or not.
You need a fed Tax ID no. You can fill out the
application, which you can get online and fax it in.
Start taking out .076 of her/his paycheck to pay Soc.
Sec. tax and you will be matching it
All is paid when you send in your taxes.
Is it worth the hassle to prepare your nanny tax materials
yourself? I vote absolutely NOT. It is ridiculous how
much work is entailed in paying nanny taxes. We use
Breedlove & Associates (1-888-BREEDLOVE). The convenience
is well worth the cost (about $350). You provide them
with the nanny's name, address, social sec. #, salary,
and allowances, and they do it ALL. You receive the
forms completely filled out with the place to sign and
date highlighted at the appropriate times of the year.
And believe me, it seems like every time you turn around
there is another one due. We changed our nanny's salary
several times as her hours changed, she got raises, etc.,
and they would always tell me immediately what the new
withholdings were. I never had to worry whether it was
done correctly; whether I had the latest version of the
form, whether I'd filled it out correctly, etc. I know
there are prepared software packages, but by the time
you install the software, read the instructions, etc.
not to mention USE IT however many times a year you
have to do this....best case scenario I can't imagine
it taking less than several hours and worst case it
could be many many more.
Breedlove and Associates performs this service for
around $350 per year (plus a one-time sign up fee).
They are based in Texas but do household taxes (and
payroll services) for all states. Their number is
1-888-BREEDLOV. When I researched it, they were far
cheaper than any tax professional I could find.
I just started paying nanny taxes in January. At first I set up an
excel spreadsheet and researched on the web all the different taxes.
You have to get an employer ID from fed. and state; once you figure
out how and where, they are pretty easy - a quick fax for the federal
EID and a phone call for the state. The Soc. Sec. and Medicare are
pretty straightforward, but state withholdings are amazingly baroque.
There are several different components (such as state disability,
unemployment ins., etc.). The percentage amt. for one of them depends
on when you hire, so basically you have to wait for the state to tell
you how much. To make a long story short, I am sharing the nanny with
a friend, and she was worried about getting all the tax payments in
on time, and the pay check was getting complicated with our schedules
that change every week, so she found an online nanny tax system that
is GREAT. It's called Pay Cycle and it's https://www.paycycle.com/
Everything is online, though there is also excellent phone support,
and it is $20 a month, which is cheaper than other services we
researched. It's based in the South Bay. I highly recommend it, if you
like to do things online and you don't want to hassle with computing
taxes and remembering when to send in your payments. One thing I
really like is I can tell them what hourly rate I want to pay my
nanny, and they figure out the withholdings so she still gets that
rate (because we are paying the taxes.) It turned out that I had
computed the state withholdings wrong, plus I had a couple of errors
in my spreadsheet so that Medicare was way off. The support person was
just great about fixing everything up, and now I just go to the website
every two weeks and enter the number of hours. I get a paystub to
print out, and a check amt. (you can also set it up for direct deposit
but I just write out a check to my nanny.) They track taxes and remind
me when it's time to pay them. I highly recommend them.
I thought I would add a few more pieces of info. I've
picked up while paying nanny taxes:
1) Employment Development Dept.(EDD) has an informative
booklet on Household Employees. It can tell you at what
point($$ per qtr paid) you are responsible for State
Disability, Unemployment taxes etc.
2) The IRS publication 926, Household Employer's Tax
Guide helps you with the federal aspects of paying a
My employee wanted me to with hold federal taxes, which
are easy to do. I refused to with hold state taxes(you
are not required to), b/c it gets too complicated. I've
designed a spreadsheet for paying my nanny that computes
the Federal, soc, sec., medicare, unemployment and disability
taxes. It will also create a W-2 for you at the end of
the year(so you can then type the info onto the actual
IRS W-2 form). If your interested let me know and I can
email it to you.
Once you have a system down for computing payroll, taxes
etc. it's really quite easy.
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