Nanny Tax?

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auggiedoggies
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Nanny Tax?

Post by auggiedoggies » Thu Oct 27, 2016 11:23 am

Wife and I have an in home nanny that we have hired. We are in MN, and I have no idea how to pay taxes on her. Can anyone help? I've done some reading and research, and I'm still quite confused.

As far as I know, I have to pay federal, state, and unemployment taxes? Does anyone know how much that is, or how it works?

If it matters, our gross income is about 130k, and we have one child. Both parents work. Thank you!

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HueyLD
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Re: Nanny Tax?

Post by HueyLD » Thu Oct 27, 2016 11:29 am

https://www.irs.gov/pub/irs-pdf/f1040sh.pdf

https://www.irs.gov/pub/irs-pdf/i1040sh.pdf

First link is the tax form and second link is instructions for the form.

ThankYouJack
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Re: Nanny Tax?

Post by ThankYouJack » Thu Oct 27, 2016 11:52 am

Aren't the taxes suppose to be withheld from each paycheck?

Any recommendations for software that will automate this for you (including state taxes) and withhold the proper taxes?

auggiedoggies
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Re: Nanny Tax?

Post by auggiedoggies » Thu Oct 27, 2016 12:14 pm

ThankYouJack wrote:Aren't the taxes suppose to be withheld from each paycheck?

Any recommendations for software that will automate this for you (including state taxes) and withhold the proper taxes?
Honestly, I'm so confused by this whole thing. I consider myself financially literate, but taxes have always been the one thing that I just don't quite understand. We have been withholding some taxes form our nanny's paycheck, but I'm not sure if it's everything that we are supposed to withhold. Additionally, in MN you have to pay an MN state tax, and that needs to be deposited monthly and paid quarterly, and I am beyond confused on how that works. What exactly is supposed to be withheld, and why?

furnace
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Re: Nanny Tax?

Post by furnace » Thu Oct 27, 2016 12:31 pm

It's $40/mo from this company: https://www.surepayroll.com/

You can shop around.

clip651
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Re: Nanny Tax?

Post by clip651 » Thu Oct 27, 2016 5:07 pm

NannyChex is another company you can look at. For starters, they have some good FAQ type resources there that will help get you oriented.

Leemiller
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Re: Nanny Tax?

Post by Leemiller » Thu Oct 27, 2016 9:51 pm

There is federal, state unemployment and workman's comp required in my state. You should get professional advice.

wolingfeng
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Re: Nanny Tax?

Post by wolingfeng » Thu Oct 27, 2016 10:50 pm

You can choose to use a online payroll service. I am using intuit payroll, which they have two level of account. Basic and enhanced. Enhanced one is really easy, you pay more but you can electronically file and pay taxes. You file tax federally quarterly, state tax can be different but the payroll service should guide you. There are some initial works you have to set up with IRS and state like EIN number, etc, and EFTPS, if you want to pay taxes electronically. I recommend to have a good record keeping habit... and personally I feel that paying nanny tax is such a pain, for people who want to do the "right" way.

auggiedoggies
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Re: Nanny Tax?

Post by auggiedoggies » Fri Oct 28, 2016 9:04 am

Thankfully we do good record keeping of what we pay our nanny and exactly how many hours she works, so that makes things easier....looks like paying for some sort of service will be the next step. Thank you all!

ThankYouJack
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Re: Nanny Tax?

Post by ThankYouJack » Fri Oct 28, 2016 9:21 am

Seems like Intuit Enhanced Payroll could be one of the better options for about $400/year.

But would this be a possible simple option?

Don't withhold your nanny's taxes from each paycheck. Keep a basic spreadsheet of the payment amount and date. Make it clear to your nanny that the paychecks are pre-tax and she will have to pay taxes on the income come April 15th.

File a Schedule H using TurboTax or TaxAct when you do your taxes at the end of the year to pay for the employer portion of the taxes (including state if necessary).

It probably makes sense for the employee and employer to pay estimated taxes each quarter so they don't have to pay penalties come April 15, but those could be real roughly estimated.

ThankYouJack
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Re: Nanny Tax?

Post by ThankYouJack » Fri Oct 28, 2016 9:26 am

auggiedoggies wrote:
ThankYouJack wrote:Aren't the taxes suppose to be withheld from each paycheck?

Any recommendations for software that will automate this for you (including state taxes) and withhold the proper taxes?
Honestly, I'm so confused by this whole thing. I consider myself financially literate, but taxes have always been the one thing that I just don't quite understand. We have been withholding some taxes form our nanny's paycheck, but I'm not sure if it's everything that we are supposed to withhold. Additionally, in MN you have to pay an MN state tax, and that needs to be deposited monthly and paid quarterly, and I am beyond confused on how that works. What exactly is supposed to be withheld, and why?
I was thinking the nanny's portion of her income taxes are suppose to be withheld since I think she's considered a W2. But I'm not sure either and am interested in finding out because we're planning to hire a nanny. You may be fine, if the scenario I mentioned above is an option...hopefully others will chime in.

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NateH
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Re: Nanny Tax?

Post by NateH » Fri Oct 28, 2016 9:49 am

auggiedoggies wrote:Wife and I have an in home nanny that we have hired. We are in MN, and I have no idea how to pay taxes on her. Can anyone help? I've done some reading and research, and I'm still quite confused.

As far as I know, I have to pay federal, state, and unemployment taxes? Does anyone know how much that is, or how it works?

If it matters, our gross income is about 130k, and we have one child. Both parents work. Thank you!
you will want to read IRS Pub 926 for the tax wihholding rules.
we also live in MN and have hired summer nannies for years. it's not that hard to do yourself.

for Unemployment, you will need a business tax ID - you can get that online from the IRS.
Then register at uimn.org For us, the UI has only been a couple bucks a quarter.
4X top-twenty S&P 500 prognosticator. I'd start a newsletter, but it would only have one issue per year.

PugetSoundguy
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Re: Nanny Tax?

Post by PugetSoundguy » Fri Oct 28, 2016 10:32 am

We used a company called Breedlove, I think they now use the name Homepay.

They handled everything: withholding, direct deposit for the nanny, earnings statements, you name it. They also walked us through how to report all this on our tax returns as well. Outstanding service every time I had a question. Worth every penny for us.

joebh
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Re: Nanny Tax?

Post by joebh » Fri Oct 28, 2016 1:12 pm

auggiedoggies wrote:Wife and I have an in home nanny that we have hired. We are in MN, and I have no idea how to pay taxes on her.
Yikes. You did things in exactly the wrong order.

Hire a CPA right away. For a few hours of work, a good CPA should be able to get you educated and set up correctly.

You are an employer now. Employers are supposed to be able to deal with the appropriate taxes. This isn't something you want to mess around with.

batpot
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Re: Nanny Tax?

Post by batpot » Fri Oct 28, 2016 2:19 pm

I'm doing it myself, and used this as a great guide:
http://pixeltheoryinc.com/nanny-tax-how-to.html

It is WA specific, so you will have to adjust the state stuff to MN, but the Federal stuff is common.
Unfortunately MN has state income tax, so I can't help you much with that, but I suspect you pay it quarterly w/ unemployment tax to the state.

I decided to just have more withheld from my paycheck rather than send a separate quarterly FUTA/FICA payments to the IRS, and I discussed with her up front that federal income tax will not be withheld, so she will be responsible for that.
I made my own paychecks, and keep track of hours, dollars, and taxes in excel.

EDIT: after further reading, just hire somebody.

Nearly A Moose
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Re: Nanny Tax?

Post by Nearly A Moose » Fri Oct 28, 2016 5:19 pm

We use care.com / homepay / breedlove (all the same company, just not sure what they're branding themselves as now). Is it expensive? Yes. Is it worth it? Absolutely.

We pay somewhere around $1,000 in fees each year for the full service - payroll, taxes, etc. Worth every penny. I don't have to research the tax issues, no worries about whether I'm messing up some obscure state/city tax, and it makes tax time much easier. I'd strongly encourage you to look into them or a similar service. If the $1,000 a year is an issue, consider whether you have options to use the time you would have spent figuring all this crap out on an income-generating activity.

Also, Breedlove will give you a tax breakdown as a courtesy as part of the initial consultation (or at least they did for me). It might be worth talking to them just for that.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

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oneleaf
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Re: Nanny Tax?

Post by oneleaf » Fri Oct 28, 2016 6:00 pm

Anyone compare Breedlove with SurePayroll? The latter is quite a bit cheaper and has excellent reviews. Not sure if you get more with Breedlove? We are also looking for an option starting in the new year.

ThankYouJack
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Re: Nanny Tax?

Post by ThankYouJack » Sat Oct 29, 2016 10:07 am

Nearly A Moose wrote:We use care.com / homepay / breedlove (all the same company, just not sure what they're branding themselves as now). Is it expensive? Yes. Is it worth it? Absolutely.

We pay somewhere around $1,000 in fees each year for the full service - payroll, taxes, etc. Worth every penny. I don't have to research the tax issues, no worries about whether I'm messing up some obscure state/city tax, and it makes tax time much easier. I'd strongly encourage you to look into them or a similar service. If the $1,000 a year is an issue, consider whether you have options to use the time you would have spent figuring all this crap out on an income-generating activity.

Also, Breedlove will give you a tax breakdown as a courtesy as part of the initial consultation (or at least they did for me). It might be worth talking to them just for that.
Can you just have TurboTax figure it out and not worry about withholding from each paycheck (like the situation I mentioned above)? If so, that would take me about 30 extra minutes so would be worth the $1,000 savings.

krannerd
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Re: Nanny Tax?

Post by krannerd » Sat Oct 29, 2016 11:18 am

I'm in MN and used a local tax prep (bergstrom tax) firm in SW minneapolis to prepare our documents and tax forms. We paid her via bank transfer weekly and paid the taxes quarterly.

I think the costs were $40 per quarter and they knew how to navigate the state agencies.

Hope this helps.

Nearly A Moose
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Re: Nanny Tax?

Post by Nearly A Moose » Sat Oct 29, 2016 7:45 pm

ThankYouJack wrote:
Nearly A Moose wrote:We use care.com / homepay / breedlove (all the same company, just not sure what they're branding themselves as now). Is it expensive? Yes. Is it worth it? Absolutely.

We pay somewhere around $1,000 in fees each year for the full service - payroll, taxes, etc. Worth every penny. I don't have to research the tax issues, no worries about whether I'm messing up some obscure state/city tax, and it makes tax time much easier. I'd strongly encourage you to look into them or a similar service. If the $1,000 a year is an issue, consider whether you have options to use the time you would have spent figuring all this crap out on an income-generating activity.

Also, Breedlove will give you a tax breakdown as a courtesy as part of the initial consultation (or at least they did for me). It might be worth talking to them just for that.
Can you just have TurboTax figure it out and not worry about withholding from each paycheck (like the situation I mentioned above)? If so, that would take me about 30 extra minutes so would be worth the $1,000 savings.
I just don't know. I felt there was just too much potential for there to be some tax, withholding requirement, reporting requirement, etc. that I'd mess up. So I've used the service and haven't looked back. Sorry I can't help you more.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

dbr
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Re: Nanny Tax?

Post by dbr » Sun Oct 30, 2016 9:27 am

You are right to be concerned. I did the whole drill myself to hire home health care at one time and would agree finding a good tax package or using an accountant is a good idea. Since I did this myself and didn't have tax software then, I can't point you to anything specific. At the time I had found a good primer on the subject online, but I don't remember the site.

In addition to taxes be sure you cover insurance and compliance with wages and hours law federal and state.

One thing I found is that federal and state requirements are not necessarily consistent or coordinated, may set different standards, etc.

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Ethelred
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Re: Nanny Tax?

Post by Ethelred » Sun Oct 30, 2016 7:23 pm

We don't use a nanny any more, but I can vouch that Breedlove were excellent when we did.

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rcjchicity
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Re: Nanny Tax?

Post by rcjchicity » Sun Oct 30, 2016 8:44 pm

We used savvynannypayrollservices.com for $360/yr. I just looked on the website and MN is one of the states it's available in.

pindevil
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Re: Nanny Tax?

Post by pindevil » Mon Oct 31, 2016 5:40 am

I went to an accountant to help me get things started. It seems overwhelming at first but once I saw what the accountant was doing it was really easy to do myself.

I also found this useful,
https://www.irs.gov/publications/p926/ar02.html

2DrsSeekFreedom
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Re: Nanny Tax?

Post by 2DrsSeekFreedom » Mon Oct 31, 2016 6:58 pm

I have used http://www.savvynannypayrollservices.com for over 2 years now and can tell you it has worked great, no complaints except for initial setup...$29.99/mo. You do have to put in an initial bit of effort, but after that, it's seamless and the cheapest nanny payroll company out there that I have found.

auggiedoggies
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Re: Nanny Tax?

Post by auggiedoggies » Thu Nov 03, 2016 9:41 am

krannerd wrote:I'm in MN and used a local tax prep (bergstrom tax) firm in SW minneapolis to prepare our documents and tax forms. We paid her via bank transfer weekly and paid the taxes quarterly.

I think the costs were $40 per quarter and they knew how to navigate the state agencies.

Hope this helps.
Thank you! I will be contacting them today!

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hornet96
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Re: Nanny Tax?

Post by hornet96 » Thu Nov 03, 2016 3:49 pm

We used the basic Intuit Payroll service through the middle of this year ($20/mo), but unfortunately they are discontinuing that service at the end of 2016.

Here is a nice summary of things to think about spcecifically for your state (MN): http://www.myhomepay.com/Answers/State- ... N/Overview

And another nice overview of the Nanny Tax in general: https://www.care.com/homepay/nanny-tax-guide

If you haven't done this already, you need to get an EIN from the IRS as the first step (was pretty easy for us - had the number in 5 minutes online from irs.gov). To do things "right," you will also need to have your nanny provide an I-9 (verification of ability to work in the US), a copy of a drivers' license or passport, and a completed form W-4 (withholding allowances). Then you will likely need to use some of that info gathered so far (your new federal EIN, SSN of the nanny, etc.) to setup your state income & unemployment tax accounts for Minnesota (not sure how that works for your state, but was the most cumbersome part for me in VA). There may be some other steps along the way that I'm forgetting about but this covers most of the initial setup I think.

Then, depending on your state requirements, you may need to file and pay quarterly payroll (unemployment) and income taxes withheld for your nanny. At the end of the year, any federal taxes withheld (income, FICA), FUTA, and the employer portion of FICA get factored into your personal income tax return since you are the household employer.

Hopefully this is helpful. It's a lot of work getting things setup initially but once you get that done, most of the administration is fairly easy.

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