With every new Presidential administration, it seems that the "Nanny tax" issue surfaces. Some potential appointees have withdrawn because they failed to pay the tax. In truth, this tax applies not only to people hiring nannies but to many people who pay significant amounts to household workers such as cleaners and gardeners.
* If you paid anyone $1,600 or more to work in your home in 2008, you are responsible for making sure that 15.3 percent of those wages is paid to the federal government, for Social Security and Medicare. Typically, employers pay the entire amount, which is the employer’s as well as the employee’s share.
In 2009, the threshold for owing this tax increases from $1,600 to $1,700.
* If you pay any household worker at least $1,000 in a calendar quarter, you must pay federal unemployment tax. In some states, employers of household workers also owe state unemployment tax or state disability tax or both.
IRS Publication 926, "Household Employer’s Tax Guide," available at www.irs.gov/pub/irs-pdf/p926.pdf, has the relevant information.
