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Hiring a nanny for summer child care? Don’t forget a W-2 form

When school’s out, parents would possibly need a nanny to handle their kids — and so they may additionally wish to file taxes for that babysitter.

Hiring a nanny can be pricey. The reasonable value of care for one baby for 40 hours per week in New York City is $17.50 an hour, or more than $three,000 a month, in keeping with child-care web site Care.com. Paying that a lot makes you an official employer by the Internal Revenue Service’s requirements, because of this you have to withhold your worker’s payroll taxes, such as Social Security and Medicare.

The rule is known as the “nanny tax,” even though it applies to anyone who works in the home and paid more than $2,100, including housekeepers, maids, babysitters and gardeners. If you move that threshold for one family worker, you might be required to withhold 6.2% for Social Security and 1.45% for Medicare taxes from all wages, the IRS said.

You are also required to pay your individual proportion of Social Security and Medicare taxes, or an additional 7.65%. If you might be withholding those federal taxes, you’ll even have to offer your nanny a W-2 Form and file a 1040.

See: Read this ahead of hiring or paying a nanny

Going into the summer with a plan to withhold your babysitter’s federal taxes will lend a hand keep away from headaches after you’ve surpassed the $2,100 threshold, said Kerri Swope, vice chairman of Care.com HomePay, a company that gives tax services to households with family workers. “Three months or 12 weeks for many summer breaks does add up,” she said.

It’s easy to cross the income threshold that requires registering a nanny with the IRS, Swope said. Case in level: A New York family with one baby paying a nanny $17.50 an hour, or $700 per week in gross pay, would wish to allocate an extra $50 per week for employer taxes, in keeping with the Care.com’s online calculator.

And but 90% of people aren't nonetheless paying the required taxes on their nanny, in keeping with personal-finance web site SmartAsset. Some employers may merely now not bear in mind that they’re required accomplish that, while others may believe it does now not apply to them. They’re additionally depriving their worker of long run Social Security advantages after they retire.

People who keep away from registering their nannies with the IRS, particularly those with careers in the public eye, additionally risk an expensive and doubtlessly humiliating public scandal. If they’re stuck, they will must pay back taxes, consequences and interest on unpaid taxes.

Alessandra Malito is a personal finance reporter based in New York. You can apply her on Twitter @malito_ali.

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