Nanny Salary vs. Total Employer Cost

When budgeting for a nanny, the hourly rate is only part of the equation. There is a significant difference between the nanny's Gross Salary (the amount they earn before their own taxes are deducted) and the Total Employer Cost (the actual total amount the family will spend).

Understanding the "Nanny Tax"

When you hire a nanny and pay them over a certain threshold annually (set by the IRS), you become a household employer. This obligates you to pay employer payroll taxes, commonly referred to as the "nanny tax."

The standard employer tax burden typically includes:

• FICA (Social Security & Medicare): The employer is responsible for matching the employee's FICA taxes. This is generally 7.65% of the gross wages.
• FUTA (Federal Unemployment Tax): Often 6% on the first $7,000 of wages, though state credits usually reduce this significantly.
• SUI (State Unemployment Insurance): Rates vary widely by state and employer history.

Additional Hidden Costs

Beyond federal and state taxes, families should budget for several other employment expenses to find their true total cost:

• Workers' Compensation Insurance: Required in many states for household employees, this policy protects both the family and the nanny in case of on-the-job injuries.
• Payroll Service Fees: Many families pay a monthly fee to a payroll service to handle tax withholdings, Schedule H filings, and pay stubs.
• Benefits and Perks: Healthcare stipends, mileage reimbursement, and annual bonuses directly increase the total employer output.