Q. We use a baby sitter to watch our children after school. Are we responsible for a nanny tax? S.B., Carlsbad, Calif.
A. Technically, if you employ a domestic worker who earns more than a specified amount during the year ($1,800 for 2013; $1,900 for 2014), you’re required to pay Social Security and Medicare taxes for that person. For 2013, the Social Security and Medicare tax rate is 7.65% on the first $113,700 of wages. For 2014, the 7.65% rate applies to the first $117,000 of wages. The domestic worker is also responsible for these taxes in the same amount. If you don’t withhold income tax from a nanny’s pay, the worker must make quarterly estimated tax payments.
Tip: Employing a domestic worker may also trigger taxes at the state level.