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Financial Questions and Answers

Q: Am I required to withhold taxes from the pay of a part-time nanny?

A: In 2017, if you pay a household employee wages of $2,000 or more, then Social Security and Medicare (FICA) taxes must be paid. (This is sometimes referred to as the “nanny tax.”) Generally, the withholding rate for employees is a combined 7.65% of wages. You can either withhold them from each paycheck or remit your employee’s share along with yours when you pay the government. You are not obligated to withhold federal income tax, but you may do so if your employee requests it and you agree.

Q: I'm a sole proprietor. May I deduct the health insurance premiums I pay for family coverage?

A: You may claim an above-the-line (nonitemized) deduction, limited to your earned income from your business, for your health insurance premiums (including amounts paid to cover your spouse, dependents, and children who haven’t turned 27 as of the end of the tax year) once you meet all the requirements. You can’t deduct the cost of coverage for any month you’re eligible to participate in a subsidized health plan maintained by an employer (of you, your spouse, your dependent, or your child who’s under age 27). Partners and more-than-2% S corporation shareholders whose firms pay for their health insurance coverage may also claim the deduction, but they must report the premiums as income.

June 2017 Newsletter Previous Article