Nanny Tax is an umbrella term covering several different taxes with respect to domestic-service employees, including Social Security, Medicare and the federal unemployment taxes. The Social Security and Medicare Tax (FICA), is 15.3 percent of the gross wages of a domestic-service employee, of which half is contributed by the employer and half is withheld from the employee’s wages and paid over by the employer. The Social Security Tax rate is 6.2 percent each for both the employer and employee and the Medicare Tax is 1.45 percent each for both the employee and the employer. The employer is responsible for withholding the employee’s share of the FICA taxes from the employee’s wages. In addition, the employer must pay a matching amount as the employer’s share of the FICA taxes. If the employer pays the domestic-service employee in cash and does not withhold the employee’s share of the FICA taxes, the employer is liable for the total amount of the FICA taxes. The Federal Unemployment Tax (FUTA) applies only to the first $7,000 of wages of a domestic-service employee, as long as the domestic employee earns at least $1,000 in any one quarter of the current taxable year or previous taxable year. The FUTA tax is only 0.8 percent, as long as the state unemployment tax is paid on time prior to the filing of the employer’s tax return. In the event the state unemployment tax is not paid on time, the FUTA tax rate is 6.2 percent of the domestic-service employee’s wages.
Reference: © 2010 Schiff Hardin LLP