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Babysitting Tax / Nanny Tax
The babysitting tax, more commonly known as the "nanny tax", can apply to anyone who you would employ for childcare purposes in your home and is a combination of the FICA and FUTA taxes.
The FICA tax is made up of the social security and medicare taxes. The employer and babysitter must each pay 7.65% of wages paid for a total of 15.3%. In reality though, few employers add the 7.65% to the babysitter's salary throughout the year to be deducted afterwards and thus are on the hook for paying the whole amount.
The FUTA (federal unemployment) tax amounts to 0.8% of wages, assuming you've paid all required state unemployment/disability taxes. It is applied to the first $7,000 paid to the babysitter during the year but only if the babysitter was paid at least $1,000 in any calendar quarter (i.e. Jan - Mar, Apr - Jun, etc.) for the current year or previous year.
All FICA and FUTA taxes on the babysitter's wages are considered part of your personal tax liability for the given tax year. Having said all this, before you get too concerned with how much extra money you'll need to fork out to the government, you may not have to end up paying babysitting taxes at all. It all depends on who you hire and how much money you pay them throughout any given year.
Am I Tax Exempt?
There are a number of situations where you may be exempt from the babysitting tax such as:
- You paid a particular babysitter under $1700 during the year (2009).
- You hired a student who was under 18 years (no limit on how much they were paid).
- You hired a parent, spouse, or your own child under 21 years.
Please note the information above is only meant to be a general guide, could be out of date, and should not be used to determine how much tax is owed. Please check with your accountant or the IRS website for the latest figures and requirements for the current tax year.