Nanny taxes 2018, for NC specifically

21 Feb

Good thing I told you I would write this blog post!  I knew that the tax code had changed for 2018, but didn’t think that would change how I pay my nanny.  Obviously it did, so I may as well walk you through how to employ and pay a nanny.  I’m also adding exclamation marks to everything because this is really not very exciting stuff.  I’ve spent hours doing all this so I hope it saves you some time, or you can just pay one of those payroll services that specialize in nannies to do it.  I’m stubborn and heck, I’m a mathematician! and hence doing it myself, but I would not recommend it.

Before nanny starts:

  1. Get a federal employment identification number at this website: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online.  You need your name, address, social security number.  This takes a few minutes.  They’ll email you and mail you a paper copy of your EIN.  You’re a household employer with domestic workers.
  2. Get a state employment identification number at your state’s website.  For North Carolina that’s here: https://www.ncdor.gov/taxes/business-registration/online-business-registration.
  3. Send your nanny an I-9 form along with their contract, to bring on day one- they need to fill out the first page, then you fill out the second page.  They also need to bring a passport (easier) or a driver’s license and birth certificate/SS card/ other stuff listed on this form: https://www.uscis.gov/system/files_force/files/form/i-9-paper-version.pdf.
  4. Assuming you want to withhold taxes instead of them paying a big sum to government in April, have them fill out a W-4 and give it to you too: https://www.irs.gov/pub/irs-pdf/fw4.pdf
  5. If they’re not single or have more than zero allowances, they’ll want to fill out a state withholding form too.  Here’s the one for North Carolina: http://www.northeastern.edu/hrm/pdfs/hr-payroll/NC_4.pdf.  My nanny didn’t fill this out because I’m just doing the standard deduction for her.
  6. Tell your state that you hired a new person.  For NC that site is here: http://www.ncchildsupport.com/employers.jsp.

Paying the nanny!

  1. Each pay period you need to generate a pay stub for your nanny and print it out or email it to her.  I googled “nanny pay stub” and picked a template; it looks like this.paystub
  2. So to calculate all this, the hours and rate part is easy, just keep track of that.  You’ll need to make a big old spreadsheet.  The gross pay with hours*rate + gas (in our case we give a flat amount; if you want to keep track of mileage the IRS mileage rate is 54.5 cents per mile) is what medicare and social security are based off of.  Social security is 6.2% of the gross pay, and medicare is 1.45%.  You withhold this from your nanny, and will match it and pay it to the government once a quarter or year.
  3. For federal income tax, the standard deduction in 2018 is now $12,000.  That means your nanny gets $12,000 of untaxed income: if you pay them once a week, you subtract $230.77 from their gross income to calculate federal income tax.  If like us you do every two weeks, you subtract $461.54 to calculate federal income tax.
    1. Here’s the tax brackets page.  Our nanny lies in the 12% bracket, which means that for her taxes, we do $952.5 plus 12% of anything she makes over $9,525.  As we pay her biweekly, her federal income tax is $36.63 + 12% of (her gross pay – $461.54 – $36.63).
  4. For state income tax, your state might have DIFFERENT standard deductions from the federal rate.  For North Carolina, it’s $8,750.  So again, you subtract from the gross income to figure out how to calculate the state income tax.  North Carolina has a handy chart on page 15 of this book to calculate the state income tax.
    1. State income taxes change per state.  For NC it’s 5.75%, so we have 5.75% of (gross pay – $336.54).
  5. Summary: Pay your nanny hours*rate+gas money (or other taxable money you pay them), subtracting social security and medicare (step 2), federal income tax (3), and state income tax (4), and adding health insurance money (untaxed) and parking money or other untaxed stuff (bicycling is untaxed!).  Our nanny spends about $100 a month on health insurance, so each pay period we tack on $50 of untaxed money.
  6. Bonus: we also do overtime (1.5 times the pay) for any work on holidays (as stipulated in our contract), anything over 40 hours a week, and anything over 10 hours a day.  And we also do paid holidays.  You might consider setting aside a little money each month in case of pregnancy or other short term leave- this isn’t required federally or statewide, but is a good thing to do and if you don’t set aside money you won’t be able to offer paid leave.  Check out http://faircarepledge.com/ for more.

Taxes and paperwork for the nanny!

  1. Make sure you send them a pay stub for each pay period.  Also, we tried a lot of ways for payment (paypal, cash app, checks) and ended up using direct transfer between bank accounts since we have the same bank.  Up to you!
  2. To create a W-2 form for them (by January 31), you can pay money to someone online (you can also do that to do all of this), or use the government website at Business Services Online .  After you register you’ll have to fax the EIN form in, from step 1 of before the nanny started.  Then once they receive the fax, they’ll call you (so answer the phone from strange numbers a few days after you send in the fax) and tell you that you can use the services.  Plug in all the numbers you made, and it’ll generate a W-2 to give to your nanny.  The pro of using the government website: it automatically makes and sends a W-3 for you.

Paying the government!

  1. To pay your taxes at April tax time, you need to fill out a Schedule H and file it with your taxes.  Schedule H has all the info in it for you to calculate stuff.  Your nanny’s federal income tax, social security/medicare, and FUTA is paid with your income tax and 1040 in April (but you can/should do estimated quarterly tax payments so you don’t have to pay all of it at once).
    1. To pay quarterly payments, go to the online payment website by the 15th of January, April, June, and September and file the 1040-ES.  That’s where you’ll pay the FUTA, federal income tax, social security, and medicare each quarter.  As usual you need your EIN.
  2. You’ll pay Federal Unemployment Tax (FUTA).  Unless you’re in California for the Virgin Islands, FUTA is 0.6% of wages up to $7000 per year.  (It’s more in CA and VI).  So it’s $42 per employee per year that you send in at this website, still using that federal ID number.  It’s due January 31 for the previous year.
  3. You’ll also pay State Unemployment Taxes (SUTA). For NC it’s 1% for the first $23,500 of gross pay.  So that’s just $235 a year to send to the state via this website.
  4. To pay your State Income Taxes that we withheld earlier, go to the state’s Department of Revenue site and send it in there.

 

That’s it!  Easy-peasy!  Not really.  This calendar on Care.com is pretty helpful for staying organized.

Good luck if you have a nanny; this is complicated but ultimately it’s better for everyone if you pay them as a real employee with taxes instead of under the table.

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2 Responses to “Nanny taxes 2018, for NC specifically”

  1. bf February 21, 2018 at 3:25 pm #

    I had a nanny for many years, and had officially registered. I used to complain of how complicated the paperwork was, but I am now regretting my complaint as the way we do it in Italy is way easier.

    It’s funny since a lot of Italian parties say we should learn how to simplify administration from the US :).

    • yenergy February 22, 2018 at 10:36 am #

      Definitely not the tax code! This took me so many hours of research and double checking my math. I have so much more respect for accountants now!

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