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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121563  
Subject: Re: Nanny Taxes Date: 1/12/1999 8:08 PM
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[[ My wife and I employed a Nanny during 1998 for the 1st time. We pay her
about $19,000/yr and therefore elected to pay all taxes due on our 1998 tax
return.

We did not deduct any FIT from her pay... just Social Secuirty at 6.2% and
State Disability and Medicare at 1.45%.

I am just wondering if you have any pointers... In fact I'm not sure which forms I
will have to fill out in order to indicate Social Security taxes for the employee
etc.

Any info would be appreciated.]]

Sure...here you go.

Under the former law, individuals who hired domestic employees such as baby-sitters, housekeepers, nannys, or yard workers, had to withhold and pay Social Security taxes when the worker's wages exceeded $50 in any calendar quarter. When the $50 threshold was reached, the employer was required to file a quarterly report (Form 942, Employer's Quarterly Tax Return for Household Employees) with the IRS and submit the required Social Security tax for both the employer and the employee. In addition, the employer was required to withhold and report on Form 940 (Employer's Annual Federal Unemployment (FUTA) Tax Return) wages of $1,000 or more paid to a domestic employee in any calendar quarter for federal unemployment insurance tax purposes.

The Social Security Domestic Employment Reform Act of 1994 increased the $50-per-quarter Social Security tax threshold for remuneration paid after 1993. For years 1994 through 1997, the threshold was $1,000 per year.

The threshold is subject to adjustment for inflation. For 1998 and 1999, the threshold is $1,100. Thus, employers need not withhold and pay Social Security taxes when the wages paid to an employee hired to provide domestic services (including domestic service on a farm) are below the annual dollar threshold.

Employers must still withhold and pay federal unemployment insurance tax on wages of $1,000 or more paid to a domestic employee in any calendar quarter.

For services performed after 1994, the revised law exempts from Social Security taxes any wages paid to a worker under the age of 18 unless the worker's principal occupation is domestic service. Being a student is considered to be an occupation for purposes of this test. Thus, for example, the wages of a 16 year-old student who also babysits will be exempt from the reporting and payment requirements, regardless of whether the amount of wages paid is above the threshold.

On the other hand, the wages of a 17 year-old single mother who leaves school and goes to work as a domestic to support her family will be subject to the reporting and payment requirments; she will consequently obtain Social Security coverage as to those wages.

The law requires employers, beginning in 1995, to report on a calendar-year basis any Social Security or federal unemployment tax obligations for wages paid to domestic employees. IRS Form 1040 has been revised to enable such employers to report both taxes on their own Federal income tax returns, using IRS Schedule H. In addition, the employer is required to issues Form W-2 to the household employee at the end of the year. You can download/read the instructions for Sch H (and the actual form itself) at either the IRS tax site or the Fairmark tax site (http://www.fairmark.com).

Finally, the law allows employers to pay employment taxes (without estimated tax penalties) with respect to domestic employees when the annual return is filed. However, beginning in 1998, employers who are required to make estimated tax payments (including by having income taxes withheld from their wages) must include amounts due in those estimated tax payments (or wage withholding). The estimated tax penalties apply to amounts due after 1997.

Hope this helps...
TMF Taxes
Roy

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