A Nanny Match Blog

When employing a nanny, both nannies and families must understand how to accurately calculate taxes on salaries. This guide provides a comprehensive look into tax calculations across different states with examples, including the specific nuances of places like New York City, Los Angeles, and Florida. 

Understanding Labor Laws for Nannies

Under federal labor laws, nannies and domestic workers must be compensated hourly, including overtime. Annual salary is computed by multiplying their hourly rate and weekly hours by 52 weeks.

Employers must respect the privacy of employees' tax withholding choices per federal law without requesting or influencing their decisions.

Understanding Tax Deductions

When you employ a nanny, you're considered a household employer and are responsible for withholding and paying various taxes. These generally include:

1. Social Security and Medicare Taxes: These are known as FICA taxes. As of 2024, the Social Security tax rate is 6.2% (up to $160,200 of income), and the Medicare tax rate is 1.45% on all earnings. Employers are required to match these contributions.

2. Federal Unemployment Tax Act (FUTA): FUTA tax is 6.0% on the first $7,000 of each employee’s wages, but you may receive a credit of up to 5.4% if you pay state unemployment taxes.

3. State Unemployment Taxes: These vary by state. Each state has its own rates and wage bases. 

4. State and Local Income Taxes: These vary significantly by state and locality.

How Claiming Status Affects Net Pay

The amount of federal income tax withheld from an employee's paycheck depends on their filing status and the number of allowances they claim. Generally:

• Single: Single employees generally face higher withholding rates compared to married employees. This is because the tax brackets for single filers are less favorable, meaning they reach higher tax rates at lower income levels compared to married individuals filing jointly.

• Married: Married employees often experience lower withholding rates. The tax brackets for married couples filing jointly are adjusted to account for the combined income, which typically results in a lower effective tax rate compared to single filers. This adjustment can lead to a lower amount of federal income tax withheld from each paycheck.

• Dependents: Claiming dependents can significantly reduce the amount of federal income tax withheld. Each dependent can qualify the employee for additional tax credits and allowances:

  • Child Tax Credit: Employees with qualifying children may be eligible for the Child Tax Credit, which reduces taxable income by up to $2,000 per qualifying child under age 17. This credit directly lowers the amount of federal income tax owed.

  • Additional Child Tax Credit: If the Child Tax Credit exceeds the amount of tax owed, employees may qualify for a refundable Additional Child Tax Credit, which can further reduce their tax liability and potentially result in a refund.

  • Other Dependent Credit: For dependents who do not qualify for the Child Tax Credit (such as older children or other relatives), employees may be eligible for a $500 credit per qualifying dependent.

Tax Calculations by Location and Filing Status

Let's explore how taxes and net pay break down for nannies in different locations across the U.S., considering both single and married filing statuses:

The figures provided are approximate estimates and for informational purposes only. Actual tax amounts may vary based on individual circumstances and changes in tax laws. For precise calculations, consult a tax professional or use official tax calculators. A Nanny Match is not responsible for any discrepancies or errors.

Using a Tax Calculator

Consider using an online tax calculator to make calculations easier.

Websites like SmartAsset and ADP’s Tax Calculator can help you estimate both federal and state tax liabilities based on income, location, and filing status. 

Using these tools can help you plan better and avoid surprises at tax time. They can also be valuable for budgeting purposes, ensuring that you and your nanny have a clear understanding of the financial implications of their salary.

By entering accurate information and reviewing the results, you can make well-informed decisions about compensation and tax planning.

By considering FICA taxes, federal and state income taxes, and any local taxes, you can make a well-informed offer that fits your budget and meets the nanny’s expectations. Each state and city has its own tax regulations, and filing status can significantly impact net pay. It's vital to account for these differences when determining compensation.

If you need personalized assistance with your nanny placement and information regarding salary and taxes, don’t hesitate to reach out to our team. We help our clients and nannies confidently navigate employment's financial aspects.