If you pay a nanny or other household employee more than a certain amount in a year, you are responsible for paying employment taxes. That amount is known as the “nanny tax threshold,” and it’s increasing in 2024. Our payroll partner, GTM Payroll Services, provides a look at the rules surrounding the nanny tax threshold.
The Social Security Administration recently released next year’s Employment Coverage Threshold for household employees. The 2024 nanny tax threshold increases by $100 to $2,700. This is the fifth consecutive year that this threshold has increased.
If a nanny or other household employee like a housekeeper, private teacher, or in-home senior caregiver, earns $2,700 or more in cash wages in 2024, Social Security and Medicare taxes, commonly called FICA taxes or “nanny taxes” must be paid by the family and the employee. Earnings below this threshold aren’t taxable under Social Security.
For most industries, there is no employment coverage threshold, so every dollar of wages is covered by Social Security and taxable.
Household employment is one of the industries with an employment coverage threshold. This amount is set every year by the IRS. For household employees, it changes with the national average wage index.
As you can tell, it’s easy for even a temporary or seasonal worker to exceed that threshold and trigger nanny tax compliance. Summer and after-school nannies, as well as temporary senior caregivers, could reach the employment coverage threshold.
The nanny tax threshold does not apply to wages paid to a spouse, a child under the age of 21, a parent, or any employee under the age of 18.
Social Security and Medicare taxes are 15.3 percent of an employee’s cash wages. The employer (family) pays 7.65 percent (Social Security at 6.2 percent and Medicare at 1.45 percent) while the same amount can be withheld from the employee’s pay or the family can pay their worker’s share and not withhold.
Families who hire household help may also owe federal and state unemployment taxes. If an employee is paid $1,000 or more in any calendar quarter, the family needs to contribute federal unemployment taxes of six percent on the first $7,000 in wages. State unemployment tax rates vary. Don’t count wages paid to a spouse, child under the age of 21, or parent.
GTM can help
Nanny taxes can be confusing. Get a free, no-obligation consultation with a household employment expert at (800) 929-9213. We’ll explain your tax, payroll, insurance, and compliance obligations under federal and state laws and answer any questions you have about hiring and employing household help.
Use Our Agency to Hire a Nanny
As a dedicated parent, you know that finding a trustworthy and reliable caregiver is important to the healthy development of your child.
When searching for the right caregiver, many Capital Region families decide to call A New England Nanny. We can help you find the next best thing to being there yourself. Personal attention, encouragement, consistency, and a caring attitude, all given in a familiar, safe, and healthy environment – your home.
Contact us at (518) 348-0400 to request one of our amazing caregivers, and to get help with babysitting, after-school care, housekeeping, pet sitting, and more!