The end of 2022 is quickly approaching, so it’s important that everything is in order to ensure there are no surprises when it comes time to pay nanny taxes next year. Year-end tax planning isn’t something to put off or ignore. It’s important to look at your finances and think about any changes you will be making for the rest of 2022 and into early 2023. Some things to consider include:
- Adding/decreasing your employee’s hours during the holiday season
- Awarding a year-end bonus
- Adjusting salary for 2023
- Making note of any minimum wage increases in your state
- Vacation pay for the holiday season
Our payroll partner GTM Payroll Services also has this advice for year-end tax planning:
Confirm employee information
You’ll provide your employee with a W-2 in January so best take care of this now. Make sure you have their correct legal name, Social Security number, and address.
Review hours worked
Review your employee’s timesheets to make sure all hours they worked have been paid. Household employees are to be paid at least minimum wage, which will be the highest of the federal, state, or local rate. And they receive time-and-a-half for hours worked over 40 in a week.
Calculate employee tax withholding
Figure out how much your employee has already paid in taxes. Your employee owes 7.65 percent in FICA taxes. This breaks down to 6.2 percent for Social Security and 1.45 percent for Medicare. They will also owe federal and state (if applicable) income taxes.
Calculate your tax obligation
As mentioned, you also owe Social Security and Medicare taxes at the same percentages as your employee (7.65 percent total). Your federal unemployment tax responsibility is six percent on the first $7,000 of gross wages. You may also owe state unemployment taxes, which typically range from two to five percent of a set amount of wages.
Complete and submit wage and tax forms
You’ll need to submit the following:
- Form W-2 (Wage and Tax Statement) and Form W-3 (Transmittal of Wage and Tax Statements)
- Form W-2 must be supplied to your employee by January 31.
- Attach Schedule H (Household Employment Taxes) with your personal tax return
Also note that for 2023, the domestic employee coverage threshold amount will increase to $2,600; this means that you are required to pay taxes if you pay a nanny at least $2,600 for the year.
Make sure you keep accurate records of any changes you make, along with any changes to any federal or state tax and wage laws.
Need Help with Year-end Nanny Taxes?
Figuring out year-end nanny taxes can be confusing and time-consuming especially when you’d rather be spending time with your family creating holiday memories. GTM Payroll Services can automate tax withholding and remittance for you and your employee. We’ll even complete the year-end forms like W-2, W-3 and Schedule H. It really can be that easy. Call them at (800) 929-9213 for a free, no-obligation consultation with a household employment expert.
Please contact us at (518) 348-0400 if you need help hiring a nanny, babysitter, housekeeper, or other household employee!