So, how to save when money is flying out the window on an hourly basis? Introducing: Flexible Spending Accounts (FSAs). I'm sure people also pay "under the table" to negate taxes, but we don't want to gamble with this option - heck, I might run for Pres one day! Or maybe not.
Paying "over the table" - taxes:
Technically, you need to report and pay social security and Medicare taxes for any "household" employee who you're paying more than $1,700/year and must pay 15.3% of cash wages - the employee typically pays 7.65% and you pay 7.65%. Steps to pay are:
- Get an employer identification number (EIN)
- Withold social security, Medicare, and federal income taxes
- Send Copy A of form W-2 to the Social Security Administration (SSA)
- File Schedule H (form 1040) with annual returns
- File FUTA taxes on form 940
Wages
- $14 x 10 = $140 per week
- $140 x 46 weeks = $6,440 per year
- Social security: $6,440 x 6.2% = $399.28
- Medicare tax: $6,440 x 1.45% = $93.38
- Social security: $6,440 x 6.2% = $399.28
- Medicare tax: $6,440 x 1.45% = $93.38
- FUTA tax: $6,440 x 6.0% = $386.40
- Wages and tips:$6,440
- Social security: $399.28
- Medicare: $93.38
- FUTA: $386.40 (remains the same - no doubling because nanny doesn't pay this, too)
Flexible Spending Account (FSAs):
My employer is rad in that they offer an FSA through our insurance. This means I can pay the nanny up to $5,000/year with pre-tax dollars. In order to do this I need to:
- Claim $5,000/year FSA daycare during open enrollment
- Pay $208.00/month into the FSA
- Pay the nanny her regular salary (with built in taxes)
- Submit expense checks to HR every 30-days for the amount paid nanny
Well, my head is spinning with numbers! Off to decorate the boys' room - much more fun than taxes. :o)
p.s. Rye - I don't know how you do this all day! You amaze me.
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