Nanny Tax changes for 2020
In 2020, paying employment taxes becomes required by law once a babysitter, nanny, or other household employee earns $2,200 in a calendar year. This is up from $2,100 in 2019.
On the other end, the cap for Social Security tax is now at $137,700 for 2020. In 2019, this was $132,900. Wages above these amounts are not subject to Social Security tax, but are subject to Medicaid tax.
Income tax changes
Income tax withholding on a nanny’s behalf is still not required for household employers. But you and your nanny can agree to this. In this case, one of the more prominent changes is the redesigned federal Form W-4. The aim of this change is to provide more transparency for the monetary values associated with allowances. Any new household employees should use the new form. Employees from 2019 can update to the new form, or continue to use the old form if they have no changes.
Federal income tax brackets have also changed. The 7 possible rates remain the same, but the amount of income to reach each higher rate has increased, resulting in less income taxes to be withheld for those on the cusp of a bracket.
Filing for 2019
These changes go into effect started in wages paid in 2020. For 2019’s tax return, the 2019 brackets will continue to be used. And if you have a nanny or other household employee, you would still create and file a W-2 for each employee by January 31, 2019.
What hasn’t changed:
- The rates of Medicare and Social Security taxes remain unchanged from last year.
- It is still tax evasion to avoid responsibilities if you do meet the requirements to be considered a household employer.
Download our handy app from the Google Play store for Android devices or the App Store for iOS devices to automatically calculate taxes and withholdings, track time, create & email pay statements and guide you through your tax responsibilities.