The IRS gives you the option to withhold your employees' share of their Medicare and Social Security taxes from their paycheck, or to elect to pay their share yourself.
Let's say you are looking to hire a nanny to come over a couple of nights a week for three hours. At the current federal minimum wage of $7.25 an hour, that's $43.50. Extend that over a year, and it's $2,262 — triggering the requirement that you pay the nanny's payroll taxes.
Under that scenario, unless you have been withdrawing payroll taxes over the course of the year, you'll have to come up with $173.04 to settle the nanny's portion of the tax, and an equal amount for your obligation as the employer.
That's probably a manageable amount to shell out come tax time. But if you end up needing to hire a nanny to come over several times a week, that tax payment could be much more. In that case, withholding payroll taxes along the way makes more sense.
Experts suggest that household employers begin withholding payroll taxes as soon as it seems likely that they'll be increasing their employees' hours, and wages, dramatically.
Even if you choose to cover the payment yourself, another option is to set the money aside in a separate bank account, so that you're not scrambling come tax time.
4. VERIFY AN EMPLOYEE'S LEGAL STATUS
The government doesn't look favorably upon employers who hire people who can't legally work in the U.S.
So the IRS requires that employers and their hires complete an employment eligibility verification form, dubbed I-9, before the end of the employee's first day of work.
The form requires that non-U.S. citizens provide information backing up their legal employment status and that the employer examine the information against a list of acceptable identification documents. Once it's filled out, employers must simply hang on to the form.
It can be downloaded here: http://www.uscis.gov/files/form/i-9.pdf .
5. KEEP SOLID RECORDS
It's important to keep accurate records of all wages and federal and state taxes you pay or withhold on behalf of your employee.
The record-keeping will come in handy when it comes time to file several forms with the IRS. They include Schedule H, on which employers report household employment taxes paid, and Form W-2, which outlines your employee's annual wages, taxes paid by you and other details.
6. GET HELP
Instead of dealing with the intricacies of the U.S. tax code, you can pay an accountant or one of the many companies who cater to handling payroll and tax concerns for domestic employers.
Webb's company runs 4NannyTaxes.com. Its services range from $495 to upward of $750 a year. They also provide free online calculators, including one to work out payroll taxes: https://www.4nannytaxes.com/calculator/taxcalc.cfm .
Another company, Breedlove & Associates, offers a pay-as-you-go service on its website, www.breedlove.com, that costs $185 every three months.
For a more hands-on approach, Essentia Software Corp. sells NannyPay, software that will calculate taxes, print pay stubs and tax forms. It starts at $119.95 and requires an annual subscription. It can be downloaded at http://nannypay.com .