Homework Solutions Nanny Tax Calculator

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HWS families can rest easy knowing that all labor and tax compliance items are taken care of by a HWS tax expert. If you are paying your household employee the same thing every week, we can even setup your payroll so that it runs automatically without you ever having to do a thing.

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Household payroll has many unique and often nuanced laws, specific regulations and exceptions and exemptions that differ from corporate or business oriented payroll. Most payroll companies simply do not understand or handle household payroll issues properly. At HWS, we are focused solely on household payroll and domestic employment. It’s all we do, it’s all we have ever done.

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Since 1993 HWS has helped tens of thousands of families through ever conceivable household employment issue or challenge. We have been consulted by the Wall Street Journal, the New York Times, Fox and many other national media. Our knowledge, expertise and reputation are the reasons organizations like the World Bank and IMF partner with us. It’s the reason most of our clients are referred to us by other clients, CPAs or referral agencies. Formerly online at 4NannyTaxes.com

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A live household tax and labor law expert awaits your questions every Monday – Friday from 8:30 AM – 7 PM EST – no waiting, no phone trees, just friendly expert advice. We offer a concierge level of service only a small dedicated team can provide.

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When you use our payroll service, we guarantee your payroll tax returns will be filed accurately and timely, and all applicable payroll taxes will be paid on time. No notices, no penalties, no red tape, guaranteed.

My nanny wants net take home pay of $600 a week. What does that mean?


Many household employees, including nannies, expect to negotiate a “net wage” or “net take home pay” agreement with their employer. The net take home pay agreement is a foreign concept for many nanny employers, and often the new employer does not fully understand the financial implications of a net pay agreement with the nanny or housekeeper.

HomeWork Solutions always advises hiring families and nannies alike to put together a written work agreement. This is the place to document your financial agreement with your household employee, including the respective tax obligations of the family and nanny, as well as to articulate benefits, job responsibilities, and the all important confidentiality agreement. Most importantly, state the agreed GROSS hourly wage or before tax wage in this agreement so both parties are in agreement up front. This is vitally important when a family agrees to hire a nanny on a net wage or net take home pay basis, as these terms are subject to interpretation and the two parties may have different understandings of what this means.

So what is a net take home pay wage agreement?

As a household employer, the family has certain tax obligations that they are legally required to comply with, and some they may choose to handle as an accommodation to their employee. Thus, a net wage agreement will always involve the Social Security and Medicare taxes, and may include the employee’s income taxes. Families may either agree to a take home pay net of the Social Security and Medicare taxes (and stipulate that the employee is responsible for his/her income taxes) OR may agree to a take home pay net of both the Social Security/Medicare taxes AND the employee’s Federal and State income taxes. All too often the family intends the former, and the employee assumes the latter. When this is not clearly understood, considerable strain can be placed on the relationship at tax time!

The employer is solely responsible for the remittance of all Social Security and Medicare taxes. Should the employer fail to collect this tax from the employee via periodic payroll deductions, the employer remains responsible to remit or pay the tax to the IRS. The household employee CANNOT remit their share of Social Security and Medicare tax independent of the employer. A net wage agreement ALWAYS involves an agreement that the employer will be paying both the employee and employer portions of the Social Security/Medicare taxes. The employee’s portion of the Social Security/Medicare taxes is 7.65% of gross wages.

As a household employer, however, you have no legal obligation to withhold (or remit) the employee’s income taxes. Most families with a full time employee (nanny or housekeeper for example) will agree to withhold the employee’s income taxes as an accommodation to the employee. After all, this is what all other employers do (whether they want to or not) in the commercial world. In a net take home pay agreement where the employer agrees that they will “gross up” the employee’s wage for tax reporting purposes to include the employee’s income taxes, this should be clearly understood by all parties.

Video: Gross Pay v. Net Pay

Illustration

The illustration below assumes a single nanny, no dependents living and working in Montgomery County MD who is paid net $600/week for a 40 hour work week. Numbers are rounded for illustration purposes.

Net of SS/Medicare OnlyNet of SS/Medicare & Income Taxes

Net Take Home Pay$600.00$600.00
SS/Medicare 7.65%$45.90$62.38
Federal Income TaxN/A$96.26
State Income TaxN/A$56.88
Gross Wage$645.90$815.52
Est. Employer Taxes$64.00$81.00
Employer Cost/Wk.~$710.00~$896.00
Employee Rate/Hour$16.15$20.39

The table above clearly illustrates the tremendous difference the two net wage scenarios have on the financial commitment of the family. Another important consideration is that any amounts the employer reports and pays for the employee’s income taxes are HER money. If she ends up getting a tax refund at the end of the year, this is HER tax refund. We recommend that you discuss the employee’s filing status in detail with our firm (800.626.4829) or with a qualified tax practitioner. While no one can guarantee that the nanny will not either owe some money or receive a refund upon filing an annual tax return, there are reasonable steps to take that can get this calculation as close to break even as possible. Again, the statement in the work agreement on the agreed GROSS compensation is vital to all parties.

Video: Net Wage Work Agreements – Careful!

Resources:

CASE STUDY: I Agreed to Pay our Nanny $600 Take Home Weekly 

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