You don’t necessarily have to hire a nanny to be responsible for paying the “nanny tax.” The tax also can apply when you hire a gardener, housekeeper, babysitter, or any other household employee who isn’t an independent contractor.

FICA

Under the nanny tax rules, a household employer generally is responsible for paying FICA (Social Security and Medicare) taxes on the cash wages of a household employee who earns $1,600 or more in 2008 (up from $1,500 in 2007). The tax generally is equal to 7.65% of the total wages you pay — 6.2% for Social Security* and 1.45% for Medicare. Also, you should withhold 7.65% from your employee’s wages, representing the employee’s share of the FICA tax. If you don’t withhold the tax, you are responsible for the combined 15.3% tax.

FUTA.

You also may have to pay federal unemployment tax (FUTA) for your household employee. You will have a FUTA obligation if you pay $1,000 or more in cash wages to household workers in any calendar quarter of the current or past year. FUTA is not withheld from an employee’s pay — it is solely the employer’s responsibility.

Federal Income Tax

As a household employer, you are not required to withhold federal income taxes from your household employee’s pay. However, you have the option of withholding income taxes if your employee requests it.

How to Report and Pay

You’ll need to file Schedule H with your annual income-tax return (Form 1040). First, you must obtain an employer identification number (EIN) from the IRS. In addition, Form W-2, Wage and Tax Statement, must be issued to your employee by the end of January in the year following employment and filed (along with transmittal Form W-3) with the Social Security Administration by the end of February.