Tuesday, October 24, 2006
2007 Nanny Tax Wage Test Unchanged
The IRS has announced that there will be no increase next year in the amount of wages a domestic worker can earn without being subject to FICA taxes. In 2007, you can pay a household employee, such as a nanny or housekeeper, up to $1,500 without becoming obligated for Social Security and Medicare taxes.
The wage test, or the amount of wages paid, that obligates the nanny employer (or any household employer) for the withholding and remittance of Social Security and Medicare taxes has adusted several times since 1995. The historical values are as follows:
| Year | Annual Wage Test Amount |
| 2006 | $1500 |
| 2005 | $1400 |
| 2004 | $1400 |
| 2003 | $1400 |
| 2002 | $1300 |
| 2001 | $1300 |
| 2000 | $1200 |
| 1999 | $1100 |
| 1998 | $1100 |
| 1997 | $1000 |
| 1996 | $1000 |
| 1995 | $1000 |
| 1994 and earlier | $50 in any calendar quarter |
Household employers are NOT obligated on the federal level to deduct or withhold Federal income taxes from their household employee's wages. Most, but not all, states follow the federal rules.
Household employers have a second wage test to determine whether they are subject to mandated unemployment insurance tax contributions. Household employers are subject to the Federal Unemployment Tax (FUTA) when they pay their workers $1000 or more in any calendar quarter. State obligations, separate from FUTA, are triggered at levels between $500 - $1000 in quarterly wages.
Household employers reconcile their federal employment tax obligations annually on IRS Form 1040 Schedule H. A Form 1040 Schedule H must be prepared for any year when either the annual Social Security/Medicare wage test threshold was met and/or the FUTA threshold was met. Generally, remittance of the employment taxes must be made periodically through out the year, either by estimated tax payments or increased withholding from the EMPLOYER's pay check.
For more information on this and other issues surrounding nanny payroll, consult the HomeWork Solutions FAQ
