Deep Dive: Two Sample Payment Breakdowns for Household Employers

In a related article, How I Hired a Nanny and Became a Household Employer in 8 Steps, I outlined how I became tax compliant when I hired a nanny and, as a result, became a household employer. Here, I take a deep dive into sample pay calculations for two different states -- Washington, an income-tax-free state, and California, a state with income tax. (Also be aware that some cities levy a local tax.)

So, let’s say I pay my employee $20/hour for 30 hours a week working in a state without income tax, like Washington. The chart below shows what the breakdown of pay and taxes might look like. (I used this household employee tax calculator to create these breakdowns.)

I want to draw your attention to five figures in the above chart:

1. $600.00 - Employee’s gross pay
2. $494.30 - Employee’s net pay (the amount that will be withdrawn from my account on payday)
3. $105.70 - Employee’s share of taxes (amount I set aside in a tax account)
4. $657.60 - Employer’s actual cost of having an employee
5. $57.60 - Employer’s share of taxes (amount I set aside in a tax account)

Next, imagine I live in a state with income tax requirements -- like California -- where my employee might pay about a 6% state income tax rate (assuming this is her or his only income), plus additional withholding requirements for state disability. Here is what that may look like:

As you can see, “Nanny Taxes” aka: Federal Income Tax, Medicare, Social Security, FUTA/unemployment, and state income tax (where collected) are the five most common taxes that both employers and employees must pay. It helps me to see examples to fully understand what it will actually cost for me to have a household employee (it’s more than just paying wages, as I learned, it’s paying employer taxes, too). I also found this breakdown handy for explaining to my employee how her paychecks will look.

To learn more about state by state requirements, check out this great round-up of resources in QB Community: Intuit Databases for State Tax (and Related Payroll) Questions.

Before you go

QB Community members, what tips do you have for someone considering becoming a household employer?