Do you pay on top of salary for Medicaid and Social Security?

[Anonymous]

Looking to hire a new nanny. We interviewed one who is promising, but she does not want us to withhold taxes (she says she will take care of this herself), and she wants us to pay on top of her weekly salary for Medicaid and SS. Since my Medicaid and SS is withheld from my paycheck, I was hoping to do the same for her, but she wants us to pay extra. Does anyone else do this?

[Anonymous]

We might have interviewed the same person a couple of weeks ago. Our answer was a firm no. There is no way to guarantee they are actually withholding and paying their own taxes, meaning you assume fiscal liability. Considering you will be paying the same as if things were above board, you should be damn sure you are within the legal guidelines. We didn't trust the proposal at all.

[Anonymous]

Normally, you'd pay about 7% on top of the paycheck for FICA and withhold 7%. Essentially, she's asking for 7% more salary then you are offering. If you fine with that, my personal preference would be to just increase her pay rate and withhold in the usual manner. There is a special exception for household employees,however, where you can do it as she asks.

My larger concern would be that she's not entirely comfortable being paid legally. This can translate into upset when you submit her W-2 and/or need other information from her for any childcare tax benefits. I would try to explore if this is the case as well.

[Anonymous]

Anonymous wrote:We might have interviewed the same person a couple of weeks ago. Our answer was a firm no. There is no way to guarantee they are actually withholding and paying their own taxes, meaning you assume fiscal liability. Considering you will be paying the same as if things were above board, you should be damn sure you are within the legal guidelines. We didn't trust the proposal at all.

PP again. Although I expressed my concerns above, I wanted to add that if you submit FICA, pay unemployment, and submit the w-2, your obligation is done. If she doesn't pay income tax, that liability is not on you as the employer. Just definitely keep her w-4 that indicates she declines withholding.

[Anonymous]

Anonymous wrote:Normally, you'd pay about 7% on top of the paycheck for FICA and withhold 7%. Essentially, she's asking for 7% more salary then you are offering. If you fine with that, my personal preference would be to just increase her pay rate and withhold in the usual manner. There is a special exception for household employees,however, where you can do it as she asks.

My larger concern would be that she's not entirely comfortable being paid legally. This can translate into upset when you submit her W-2 and/or need other information from her for any childcare tax benefits. I would try to explore if this is the case as well.

You are not exempted from FICA -- she cannot pay that herself legally. You are exempted from federal and state income taxes if she wishes to pay them herself.

If you "gross up" her paycheck (give her back the 7.65% you withhold), you have to count that 7% as additional income, so the calculations will change somewhat.

If she is not asking you to withhold income taxes, I would probably ask her what her "take home" rate is, and then decide if I want to work with that.

For example, if she wants to "take home" $16/hr, that would mean she is effectively making about $17.50/hr base rate to account for the FICA tax. You will also pay your portion on the $17.50 amount, not the $16 amount.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Normally, you'd pay about 7% on top of the paycheck for FICA and withhold 7%. Essentially, she's asking for 7% more salary then you are offering. If you fine with that, my personal preference would be to just increase her pay rate and withhold in the usual manner. There is a special exception for household employees,however, where you can do it as she asks.

My larger concern would be that she's not entirely comfortable being paid legally. This can translate into upset when you submit her W-2 and/or need other information from her for any childcare tax benefits. I would try to explore if this is the case as well.

You are not exempted from FICA -- she cannot pay that herself legally. You are exempted from federal and state income taxes if she wishes to pay them herself.

If you "gross up" her paycheck (give her back the 7.65% you withhold), you have to count that 7% as additional income, so the calculations will change somewhat.

If she is not asking you to withhold income taxes, I would probably ask her what her "take home" rate is, and then decide if I want to work with that.

For example, if she wants to "take home" $16/hr, that would mean she is effectively making about $17.50/hr base rate to account for the FICA tax. You will also pay your portion on the $17.50 amount, not the $16 amount.

I'm the poster you were responding to. I should have clearer. There's no exception for paying FICA, but there is an exemption for withholding it. In other words, you don't have to pay FICA on the 7% that wasn't withheld, just extra income tax. So it's not mathematically infinitely recursive! At the end of the day, it's another version of grossing up her check, but it is made slightly simpler by the exemtoon

[CPPatGTM]

I work with GTM Payroll Services who has specialized in household employment for 25 years. Ultimately, the candidate is saying that she'll pay her own income taxes as this is optional until she files her W-2 at the end of the year. She is asking for you to cover her required taxes (Social Security and Medicare) so that she will take home the salary amount that you have negotiated. You would take the weekly salary and multiply it by 7.65%, and that is the amount that you would add on top of the salary to make this happen. Essentially, you'd be paying the employee's portion as well as your own employer portion of Social Security and Medicare taxes. We've set this up for a good portion of our clients if you need further guidance. Hope this is helpful and best wishes!

[Anonymous]

Anonymous wrote:We might have interviewed the same person a couple of weeks ago. Our answer was a firm no. There is no way to guarantee they are actually withholding and paying their own taxes, meaning you assume fiscal liability. Considering you will be paying the same as if things were above board, you should be damn sure you are within the legal guidelines. We didn't trust the proposal at all.

If someone says they will pay their taxes it doesn't fall on you if they don't. As much as you want to feel like a big shot employer, you are just paying a nanny, you aren't IBM.

[Anonymous]

I wouldn't do that unless I could afford it and thought she deserved a 7% raise (or whatever it comes out to) but that's just me.

[Anonymous]

We do not pay extra - we just withhold Social Security and Medicare taxes on the rate that we initially agreed to.

[Anonymous]

Anonymous wrote:Looking to hire a new nanny. We interviewed one who is promising, but she does not want us to withhold taxes (she says she will take care of this herself), and she wants us to pay on top of her weekly salary for Medicaid and SS. Since my Medicaid and SS is withheld from my paycheck, I was hoping to do the same for her, but she wants us to pay extra. Does anyone else do this?

The short answer is yes, some people do it. It is much more complicated from a paperwork perspective. See IRS Publication 926.

[Anonymous]

Anonymous wrote:Looking to hire a new nanny. We interviewed one who is promising, but she does not want us to withhold taxes (she says she will take care of this herself), and she wants us to pay on top of her weekly salary for Medicaid and SS. Since my Medicaid and SS is withheld from my paycheck, I was hoping to do the same for her, but she wants us to pay extra. Does anyone else do this?

You do not have to withhold her income taxes, - that's her job.

She essentially wants you to make her whole for her portion of Medicaid and SS. So just gross up the rate if this is OK with you. You aren't doing anything illegal because you are still paying your own obligations, and the nanny's obligations are on her.