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Q & A



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QUESTION: I recently hired a nanny and don't know where to begin with the employment tax paperwork.

ANSWER: Household employers must register for a Federal Identification Number, State Unemployment Tax License, and possibly a State Withholding Tax License. Also, a Report of New Hires must be provided to each state within 30 days after the first date of employment. Household employees must complete a Form I-9, and a Form W-4 if one chooses to have Federal and State Tax withheld.

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QUESTION: How can I be sure the nanny is legally eligible to work in the United States?

ANSWER: The household employee must complete Form I-9, Employment Eligibility Verification, and provide the proper documentation. Employers should keep this form in the employee's personnel file for protection in the case of a payroll audit.

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QUESTION: Should I hire a nanny tax service or can I handle these tax obligations on my own?

ANSWER: This is a personal choice. With the tax laws changing so frequently, most families find that they do not have a complete understanding of the current payroll tax laws to handle these tax matters in a compliant manner. Most families simply do not have the time to handle these tax issues on their own, and choose to hire a professional tax consultant.

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QUESTION: What does Payyournanny.com do to take the burden off the household employers?

ANSWER: Payyournanny.com offers a variety of service options ranging from license registration preparation only, to a full service quarterly tax compliance and payroll service. Most clients choose to have Payyournanny.com complete the registration forms along with all quarterly and annual tax compliance. Forms W-2, W-3 and Schedule H are prepared at year-end for these clients as well.

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QUESTION: Do I need to pay Employment Taxes?

ANSWER: If you pay cash wages of $1,800 or more to one household employee, you are required to withhold and pay FICA taxes. If you pay total cash wages of $1,000 or more in any calendar quarter to household employees, you are required to pay Federal Unemployment Tax (FUTA).

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QUESTION: Which taxes should I bewithholding from the employee's wages?

ANSWER: Household employers are required by federal law to withhold FICA tax at 7.65% of gross wages. While it is not required household employers may also withhold federal and state tax at the employee's request. The employee is required to pay Federal and State withholding taxes regardless of whether they choose to have it withheld from their gross wages.

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QUESTION: What is FICA tax? May I choose to pay all of FICA as an added benefit to my employee?

ANSWER: The Federal Insurance Contributions Act (FICA) is composed of Social Security and Medicare tax. The Social Security tax pays for old-age, survivor, and disability benefits. The Medicare tax pays for hospital insurance. If household employers prefer, they can pay both portions of FICA tax from their own funds rather than withhold these taxes from the employee's wages. The employee portion of FICA tax must then be added to Federal and State Wages for income tax purposes. However, it is not counted as Social Security or Medicare wages or as Federal Unemployment (FUTA) wages.

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QUESTION: Do I withhold Federal and State Unemployment taxes from employee's wages?

ANSWER: No. Federal Unemployment Tax (FUTA) and State Unemployment Tax (SUTA) are both employer paid benefits and should not to be withheld from employee's wages.

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QUESTION: When and how do I remit Withholding and Unemployment taxes?

ANSWER: State Withholding and Unemployment taxes are most commonly remitted on a monthly or quarterly basis, depending on your specific state's requirements. Federal and FICA withholding and Federal Unemployment taxes are reported on a Schedule H which is prepared at year-end as an attached schedule to the Form 1040 due by April 15th.

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QUESTION: Is there a special form that needs to be completed for the employee's taxes each year?

ANSWER: Form W-2, Wage and Tax Statement, must be received by the employee no later than January 31st to report wages and taxes withheld.

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QUESTION: How do I remit Federal and FICA taxes that were withheld all year?

ANSWER: Federal, FICA, and FUTA taxes are reported annually on the Schedule H. U.S. taxpayers will add this liability to the personal tax return (Form 1040). To avoid a large tax liability at year end, taxpayers may decide to increase their quarterly state and federal estimated payments, or to change their withholding exemptions at work so that more taxes are withheld in order to help absorb the tax liability incurred due to hiring a household employee.

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QUESTION: What if I am not a U.S. Taxpayer? How so I remit the liability reflected on the Schedule?

ANSWER: Sign and date the Schedule H, then mail the form and payment to the IRS by April 15th.
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