Did you know that in 2023, the nanny tax threshold will be increased to $2,600?
In response to changes in the national average wage index, the threshold for domestic employees, such as nannies and housekeepers, has been raised by $200. Why is this important? Social Security and Medicare taxes (FICA) must be paid by both the employer and your household employee if their wages exceed $2600.
The changes to the tax threshold were initially introduced in 1994 by Congress as a means of simplifying employment taxes for domestic workers. This law has resulted in a significant change in taxes being remitted to the government annually, rather than quarterly, by household employers.
Using the 1995 threshold ($1,000) as a reference, the threshold for 2023 was calculated by multiplying the national average wage index for 2021 ($60,575.07) and then dividing it by the 1993 national average wage index ($23,132.67). When rounded down, this total equals $2600.
As of today, Social Security and Medicare taxes account for 15.3 percent of an employee’s cash wages. It is the employer’s responsibility to contribute 6.2 percent to Social Security and 1.45 percent to Medicare. It is important to note that earnings below this threshold are not subject to Social Security taxation.
You might be asking yourself, does this apply to all nannies? To answer your question, this applies to both full-time and part-time nanny positions, as well as seasonal and after-school positions. Nanny tax thresholds do not apply to wages paid to spouses, parents, or employees under the age of 18, or children under 21.
We understand that understanding household employment taxes can be challenging, which is why we are here to help. To assist you through the process, we have partnered with HomeWork Solutions, who are experts in nanny tax and payroll compliance. You may schedule a free consultation by clicking here: https://www.homeworksolutions.com/partners/nanny-match/
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