Nanny Tax

Definition of 'Nanny Tax'


A federal tax that must be paid by people who hire household help (a babysitter, maid, gardener, etc.) and pay them a total of more than a specified threshold amount during the tax year. The reason the IRS charges the nanny tax is because it considers an ongoing household helper to be the taxpayer's employee. As such, the taxpayer becomes an employer and must pay Social Security, Medicare and federal unemployment taxes on the wages paid to that employee. There may be state-level nanny taxes as well.

Investopedia explains 'Nanny Tax'


The nanny tax does not apply if the babysitter is the taxpayer's parent, spouse, or if the babysitter is under 18 and is not primarily engaged in the household employment profession. Another way for taxpayers to avoid dealing with the nanny tax is by hiring household help through an agency. The agency will then be the employer and be the one who pays the nanny tax. Also, if household helpers are officially self-employed, they will be responsible for paying their own taxes and the taxpayer will not have to worry about the nanny tax.



comments powered by Disqus
Hot Definitions
  1. Yield Burning

    The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
  2. Marginal Analysis

    An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.
  3. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  4. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
  5. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.
  6. Class Action

    An action where an individual represents a group in a court claim. The judgment from the suit is for all the members of the group (class).
Trading Center