January 4, 2016
Special Guest Blogger, and NannyChex Client Services Specialist, Kelly provides the answer to the question that stirs the most surprise and confusion when speaking with new employers of household employees:
“What do you mean I have to pay employer taxes?”
Most employers are aware that taxes will be deducted from their employee’s paychecks. The knowledge of the particulars of the employee withholdings varies by employer – some know the exact amounts and have studied the tax tables while others simply know that some amount is coming out. While Social Security and Medicare are fixed for all employees (7.65%) the income tax withholdings for each employee depends on both their individual withholding status and where they work and live.
Not all employers know that they have taxes that they are responsible for as well. Employers also pay Social Security and Medicare taxes (7.65%) matching their employee’s contribution (some employers choose to pay the full Social Security and Medicare contribution paying 15.3% and relieving their employee of this withholding). Employers also pay taxes for federal unemployment and state unemployment insurance. The federal unemployment tax is 0.6% and is paid on the first $7000 in wages paid to the employee. The state unemployment insurance rate varies by state and each individual employer’s rate is assigned by the state when a new employer tax account is established. There may be other employer taxes depending on where they live. As a general rule, if employers budget for 10-12% above their employee’s gross wages for their employer taxes, they’ll be in good shape.
These employer tax contributions are not unique to only household employers. Any employer of a W-2 employee pays similar employer taxes for their workers. It is not uncommon for new household employers to express surprise and even appreciation at the added costs their own employer has had to pay as a result of their own work/earnings.
While the added cost of employer taxes is often viewed as “bad news” for new employers, there’s also good news for employers who pay their payroll taxes:
Tax credits are available for employers to help offset their costs.
Employers who pay these taxes are protecting themselves from potential issues down the road. Employers who don’t pay employer taxes risk having tax and labor issues and could face professional and even legal consequences.
Employers also appreciate that the Social Security and Medicare taxes they are paying will benefit their employee in older age when the individual become eligible for those benefits.
Lastly, employers like knowing that by making their unemployment tax payments, their employee will have the opportunity to file for unemployment benefits when their work ends, and that the employer contributions are used to prevent employers from paying a large sum should the employee receive benefits at the end of the employment.
The best news is household employers who use NannyChex don’t need to worry about obtaining tax accounts, computing employer or employee tax contributions, or remitting tax filings and payments as we do all this for our clients!
Please give me a call at 877-626-6924 if you’d like to learn more about employer taxes or set-up an account with NannyChex!