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June 24, 2022

Iron out the ‘nanny tax’ wrinkles

Did you pay a baby sitter, maid, or someone else to work in your
home during 2002? If so, you may owe the

nanny tax.

Did you pay a baby sitter, maid, or someone else to work in your home during 2002? If so, you may owe the “nanny tax.” The nanny tax is nothing more than three federal employment taxes (Social Security, Medicare, and federal unemployment tax) that employers must pay on the wages of certain household workers.

If you employed a domestic worker in 2002, here’s what you need to do:

Determine the worker’s status. Is the worker your employee or an independent contractor? The nanny tax applies only to your employees. A worker is generally considered to be your employee if you directly supervise the work and you supply the tools or supplies necessary to do the job. If your worker came from an agency or runs his or her own business, the nanny tax may not apply. Employees can include baby sitters, nannies, housekeepers, gardeners, health aides and other household workers.

Find out whether your employee meets an exception. The nanny tax doesn’t apply to wages paid to your spouse, your child under 21, or an employee under age 18 whose main occupation is not household employment.

Add up the wages paid to each employee. If you paid any employee $1,300 or more during 2002, you owe Social Security and Medicare taxes. (The wage threshold is $1,400 for 2003.) Also, if you paid all your domestic help $1,000 or more in any calendar quarter, you owe federal unemployment tax. State employment taxes may also apply.

Find out what forms you need to file and when. If you paid a domestic employee $1,300 or more in 2002, you need to send your employee a W-2 form by January 31, 2003. The nanny tax is reported on Schedule H of your federal income tax return, due by April 15, 2003.

Complying with the nanny tax rules is not optional and the rules are complex and confusing. For more details and assistance with “ironing out” the nanny tax wrinkles, please call us.

Kris Nolan is a CPA and manager with the accounting and business consulting firm of Bianchi, Lorincz & Co. in downtown Hollister and in Morgan Hill.

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