Nanny Tax Question
I have googled this issue but I am still not sure I am doing everything that I am supposed to do. Can someone let me know if I am missing something?
I am hiring a nanny at $15 an hour working 40 hours per week. I have applied and received a Federal and Virginia Employer ID Number. I am going to withhold 4.2% for Social Security (increasing to 6.2% in 2012) and 1.45% for Medicare from her pay check. I will be paying and additional employer share of 6.2% and 1.45% when I file my 2011 tax return.
I can't figure out what I am supposed to do about the Federal unemployment insurance (0.8% on the first $7000). Do I also withhold that from her paycheck or do I pay that. Also, what are the Virginia requirements? I can't figure that out at all. If there is a cheat sheet on the web somewhere that would be helpful TIA.
Re: Nanny Tax Question
There is no cheat sheet that I found. You really do just have to poke around.
I signed up for and still use Intuit Household. It does all the tax calculations for you and walks you through the state info. It also creates paystubs with all of our nanny's withholding information and allows me to do direct deposit. When I signed up it was free for the first month, 9.99 for the 2 months after that, and now $20/month. It's more self service than Breedlove, but it's also a quarter of the price. Lots of people go with a full-service system like Breedlove because it really is confusing.
I'm surprised you already got a VA ID number. I couldn't get one until we had paid our nanny $1000 or $1500 - I can't remember what the cutoff is.
Also, I don't entirely understand the thresholds for federal quarterly filing, so we just chose to file federal quarterly (our taxes plus her withholdings). There are particular rules about VA for when you do and don't have to file quarterly. All I know is that we also file VA quarterly. I can't remember what the cutoff is.
We haven't filed taxes yet while employing our nanny (this is our first year), so tax time will tell if we did things correctly.
I am impressed with all the legwork you've done! We totally screwed up the social security and medicare, and ended up paying out of pocket for both her portion and ours (we never withheld, and I didn't feel right going to her and asking for thousands of dollars). So you are way ahead of where we were!
The only thing you are missing (and the only thing we did do right) is the VA Unemployment Tax, which is paid quarterly. You can go to the VA Employment Commission website to register, and you can pay it online.
A friend of mine used a service called Pay Prep, which she was really happy with and was less expensive than many others. Even if you don't use a service, they have some useful information on their website.
You can also post your question on the DC Urban Moms Nanny forum.
Good luck!
We've had our nanny for 3 years now and while I love her, dealing with the whole tax issue is a pain! I recommend checking out the 4 nanny taxes website. I found a lot of information on there about what we had to withhold and other considerations after we hired our nanny. https://www.4nannytaxes.com/faq/index.cfm . I think they may even offer a service where they do payroll for you, but I've never used it.
We also worked with our tax accountant to figure out how much our state and federal quarterly taxes would be, taking into account our tax implications as well as the exemptions our nanny claimed.
For the Federal Unemployment Tax (FUTA), that's an employer expense that you pay, but don't withhold from her paycheck. As a previous poster mentioned, you'll need to apply with the Virginia Employment Commission to get a VEC # to pay VA unemployment, which is also an employer cost and does not get withheld from the nanny's pay.
Hopeful, you as the employer, have to pay the federal unemployment insurance yourself. You can't withhold it from your nanny's pay. The good news is that the rate is actually only 0.6% on the first $7000. It's a temporary change just for the second half of this year.
I discovered this fact at NannyTaxTools.com. It's got the best cheat sheet/guide on nanny taxes that I've found. It's got some links and info about Virginia (and other states) requirements too.
I'd recommend it and it's free.