If you’ve recently hired a nanny, or are planning to hire one this or next year, you need to know the 2022 nanny tax threshold. That’s when you are required to comply with household and tax laws. Our payroll partner GTM Payroll Services has the details so you can ensure you are paying your nanny legally.
The Social Security Administration (SSA) recently announced that the 2022 nanny tax threshold will be $2,400. That’s a $100 increase over this year’s threshold and marks the third consecutive year that the threshold has seen a boost.
This means if a household employee like a nanny, housekeeper, private teacher, or in-home senior caregiver, earns $2,400 or more in cash wages in 2022, Social Security and Medicare taxes, commonly called FICA 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 few industries with an employment coverage threshold. This amount is set every year by the SSA. For household employees, it changes with the national average wage index. Besides household employees, election officials/workers, self-employed workers, and farm workers are also subject to an employment coverage threshold.
Beyond full- and part-time household employees, temporary or seasonal domestic workers can easily exceed that threshold and trigger nanny tax compliance. Summer and after-school nannies, private tutors and teachers, and temporary senior caregivers may reach the nanny tax threshold even if they only work short-term for a family.
The nanny tax threshold does not apply to wages paid to a spouse, a child under age 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 may also owe federal and state unemployment taxes. If a household employee is paid $1,000 or more in any calendar quarter, the family needs to pay federal unemployment taxes of six percent on the first $7,000 in wages. State unemployment tax rates vary. This is an employer-old tax. Wages paid to a spouse, a child under the age of 21, or a parent do not count toward unemployment taxes.
A New England Nanny is here to help you with the hiring process, and we provide guidance for paying your nanny legally. Contact us at (518) 348-0400 and let us know how we can make your life easier!