Think of the type of person who tends to employ a nanny. Report the social security and Medicare taxes that you paid in boxes 4 and 6 of your employee’s Form W-2 also add the taxes to your employee’s wages reported in box 1 of Form W-2. However, they aren't counted as social security and Medicare wages or as federal unemployment (FUTA) wages.
The social security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. If you prefer to pay your employee's social security and Medicare taxes from your own funds, don't withhold them from your employee's wages.
If you are directly paying their FICA, I'm pretty sure that is also considered income to them and is taxable and increases their required FICA. I could do electronic transfer but they prefer being paid in cash, so I do it to please them. The most time consuming thing is withdrawing the cash to pay them. I carry Unemployment and Workers Comp insurance. Every two weeks I have them sign a timesheet. It's up to my mom's aides, whether they want or need to pay quarterly taxes. That way, there is no need for any kind of withholding. I pay my EMPLOYEE's portion of FICA taxes out of my own pocket. I employ two aides to take care of my mother in her home. Also, the one time the nanny wasn't happy about a payroll issue - how wages were (properly) reported on the W2 - it was nice to have the payroll service as a buffer between us. Yes, it's expensive, but it's really nice to have that added complication in my life right now. Except I still employ a nanny and have the payroll company pay them. You want to be covered if your nanny slices off her finger while cutting an apple, or gets in a car wreck while delivering your child to balet class. Don't overlook a worker's comp policy to cover your household employee. I used to write checks, but today I would use Venmo or Apple Pay Cash to deposit their paycheck. Then they provided the schedule H and the state tax forms at the end of the year. All I had to do was forward the notice to the payroll co and they did everything. We probably got 4 or 5 of those over the years and every time the IRS/State was wrong, and I never spent a minute on the phone waiting or stressing about it. In addition to the paystubs, W4s, W3s, W2s, withholdings, etc, they also handled the notices from the IRS and the State. Cost about $1000/yr and it was 100% worth it. We paid a company to do everything except make the payment. It's been about 3 years since I employed a nanny. If anyone has used these and can comment as to how they save significant time/money, please let me know! I'm thinking I might just compute them myself, since my situation doesn't seem complicated. Why is this so expensive? The one I was referred to doesn't seem to do ANYTHING other than compute and direct deposit payments. I'm amazed to see how expensive the online services for nanny payments are, typically north of $600 per year, and closer to $1000/yr. I am looking for an online service that automates tax computation for nanny payments and takes care of the distribution of funds once I send checks to them. I am hiring a part time nanny, all legal-above-board payments including taxes.
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