Moneyzine
Contents
/Personal Finance/Household Employer's Withholding Tax (Nanny Tax)

Household Employer's Withholding Tax (Nanny Tax)

Moneyzine Editor
Author: 
Moneyzine Editor
2 mins
September 25th, 2023
Advertiser Disclosure

Definition

The term household employer's withholding tax refers to a federal tax paid by individuals that hire people and pay them in excess of specified thresholds. Also known as the Nanny Tax, the Internal Revenue Service (IRS) considers ongoing household help an employee of the taxpayer. The IRS expects these employers to pay their share of Social Security, Medicare, as well as Federal Unemployment Tax.

Explanation

More commonly known as the Nanny Tax, the Household Employer's Withholding Tax clarifies the relationship between individual taxpayers and people they may hire to provide a service on an ongoing basis. The IRS defines an employee as a person that is told not only what work needs to be done, but how it should be done. This definition distinguishes household workers from providers of maintenance, repair, and construction services. The Nanny Tax applies to full time as well as part time workers. They can be hired independently, or through an agency. Finally, it doesn't matter if the employee is paid hourly, daily, weekly or to complete a specific task.

Some examples of household work provided by the IRS include: babysitters, caretakers, house cleaning workers, domestic workers, drivers, health aides, housekeepers, maids, nannies, private nurses as well as yard workers. Generally, if annual cash wages paid to a household worker are in excess of $1,000, the employer may need to pay federal unemployment tax. In 2014, an employer paying wages in excess of $1,900 were required to pay Social Security and Medicare taxes in addition to unemployment tax.

Employers subject to the Nanny Tax are not required to withhold federal income taxes from their employee's wages. However, they may be required to pay state level unemployment taxes; state-level rules will vary by jurisdiction.

Related Terms

Related Content

  • What Can Help You Meet Your Budget While Shopping for Important Items?
    Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
    April 2nd, 2024
  • How to Make a Million Dollars in 10 Years
    Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
    March 26th, 2024
  • How to Apply Maslow’s Hierarchy to Your Money This Year
    You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
    March 27th, 2024
  • How to Tackle Multiple Savings Goals
    When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
    March 22nd, 2024
  • The Countdown to Early Retirement: 10 Expenses to Eliminate
    Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
    March 22nd, 2024

Contributors

Moneyzine 2024. All Rights Reserved.