As someone who employs a nanny, housekeeper, private teacher, or any number of domestic workers, it can be difficult to keep track of all the laws, rules, and regulations surrounding household employment. Our friends at GTM, Aunt Ann’s preferred household payroll service, provide all the information you need to know for 2021.
Nanny Tax Threshold
The nanny tax threshold for 2021 is $2,300. If you pay a household employee at least that amount, then Social Security and Medicare taxes must be paid and remitted to the IRS. Do not count wages paid to your spouse, child under the age of 21, parent, or any employee under the age of 18 at any time in 2021.
Unemployment Taxes
If you pay a household employee $1,000 in any calendar quarter of 2021, you will owe federal unemployment taxes. Do not count wages paid to your spouse, a child under the age of 21, or parent. Household employers may also owe state unemployment taxes, which vary by state.
Nanny Tax Responsibility Employer
- Social Security and Medicare (FICA): 7.65% of your employee’s cash wages (6.2% for Social Security; 1.45% for Medicare)
- Federal Unemployment (FUTA): 6% on the first $7,000 of your employee’s cash wages
- State Unemployment (SUI): varies by state. You may be able to reduce your FUTA rate to 0.6% based on your SUI contributions.
Use GTM’s nanny tax calculator to help determine what you owe.
Employee
- FICA: 7.65% of cash wages (6.2% for Social Security; 1.45% for Medicare)
- Federal income tax: Based on the employee’s Form W-4.
- State and income taxes: If applicable. Withholding income tax from your employee’s pay is optional – but recommended.
- Disability insurance: 5 states (California, Hawaii, New Jersey, New York, and Rhode Island) require an additional withholding for disability insurance – state-mandated programs that provide short-term benefits if an employee is unable to work due to a non-work-related injury.
A household employer can remit FICA, FUTA, and federal income taxes quarterly using Form 1040-ES. States typically require quarterly reporting.
Minimum Wage
Household employees are to be paid at least the highest of the prevailing federal, state, or local minimum wage rate.
Check your state and local minimum wage rates. California is city-specific.
Overtime
Nannies and other household employees are covered by the Fair Labor Standards Act and required to be paid at least time-and-a-half for hours worked over 40 in a workweek.
In California, however, overtime pay kicks in after eight hours in a day; 40 hours in a week; and the first 8 hours on the 7th consecutive day of work in a workweek.
Live-In Workers
Live-in employees are typically exempt from overtime rate of pay requirements.
Some states have their own overtime laws for live-in employees and they would apply.
Up to eight hours of sleep time can be unpaid if your live-in employee can get at least five hours of uninterrupted sleep.
California: does not allow sleep time to be unpaid.
Workers’ Compensation Insurance
23 states and Washington, D.C. require household employers to carry workers’ compensation insurance (often based on pay or hours worked). Workers’ compensation can help pay an employee’s medical bills and cover lost wages if they get injured or sick on the job.
Check your state’s workers’ compensation requirements.
Domestic Worker Protections
Nine states and two cities have domestic worker protection laws or a Domestic Workers’ Bill of Rights.
Those states are California, Connecticut, Hawaii, Illinois, Massachusetts, Nevada, New Mexico, New York, and Oregon. Philadelphia and Seattle also have enacted laws to protect household employees.
Paid Sick and Family Leave Programs
Nine states and Washington, D.C. have created paid leave programs that often include household employees. Check state labor laws.
Covid-19 Paid Leave
In 2021, paid leave for pandemic-related reasons is available but can be offered voluntarily by household employers. If allowed, workers can take any unused paid leave provided to them through the Families First Coronavirus Response Act through March 31. Employers can still take a dollar-for-dollar tax credit on qualified, pandemic-related paid leave.
States and cities may have their own paid sick leave requirements related to the pandemic.
QSEHRA
A household employer can make tax-free contributions of up to $5,300 for an individual and $10,700 for family towards an employee’s QSEHRA.
Federal Mileage Reimbursement
You can reimburse your employee for mileage up to 56 cents/mile.
Transportation and Parking Benefits
You can provide up to $270/month tax-free to your employee to help offset the costs of commuting to work. The same amount ($270/month) is also available tax-free for parking expenses.
Education Expenses
You can contribute up to $5,250 tax-free towards an employee’s qualified educational expenses such as tuition and textbooks. A special provision that was part of CARES Act and the latest stimulus package includes student-loan repayment assistance as a qualified educational expense.
Dependent Care FSA
With a dependent care FSA, you can set aside pre-tax dollars (up to $5,000) to help pay for childcare. The wages paid to a nanny can be covered by a dependent care FSA.
Child and Dependent Care Tax Credit
You can claim up to $3,000 of qualifying child care expenses – like the wages paid to a nanny – for one child and up to $6,000 for two or more children using the Child and Dependent Care Tax Credit when you file your tax return. You may receive a 20% tax credit on those expenses, which can save you up to $600 for one child or $1,200 for two or more children.