36:["$","$L37",null,{"category":"$38","relatedArticles":[{"id":"cG9zdDoyNjY1NjU=","databaseId":266565,"postId":266565,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1417,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNw==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19507,"categoryId":19507,"link":"https://smartasset.com/tax-filing/articles","name":"Tax Filing","postCount":{"pageInfo":{"offsetPagination":{"total":100,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-filing","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$39","date":"2024-10-27T16:45:35","excerpt":"

Hiring a nanny can provide much-needed support for families, but it also comes with specific financial responsibilities. One of those responsibilities is the “nanny tax,” a federal requirement that applies to families who employ household workers, including nannies, caregivers and housekeepers. As of 2024, if you pay your household worker $2,700 or more in a […]

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","

A financial advisor can help you understand your tax obligations, manage payroll taxes and make sure that your taxes are filed correctly.

","

What Is the Nanny Tax?

","

The nanny tax refers to the federal and state taxes that employers must pay for household employees. If you hire a nanny and pay them over a certain threshold, you are considered their employer and must withhold and pay certain taxes on their behalf, along with the employer’s share of payroll taxes. The tax mainly includes Social Security and Medicare taxes (also known as FICA taxes), federal unemployment tax (FUTA) and possibly state-level employment taxes.

","

The IRS sets the threshold for when you must pay the nanny tax. In 2024, if you pay your household employee $2,700 or more in wages during the year, you are required to withhold and pay these taxes. It’s important to note that this tax applies whether the nanny is working part-time or full-time.

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Who Pays the Nanny Tax?

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The nanny tax is primarily the responsibility of the household employer, meaning the individual or family that hires the nanny. The employer must calculate and withhold the appropriate amounts from the nanny’s paycheck for Social Security and Medicare taxes. These taxes are split evenly between the employer and the nanny, with each contributing 7.65% of the nanny’s wages. Additionally, the employer is responsible for paying the full amount of the federal unemployment tax (FUTA) and, in some cases, state unemployment insurance taxes.

","

It’s important to distinguish between independent contractors and employees. Nannies, by definition, are considered household employees, not independent contractors, which is why the household employer must pay these taxes. Misclassifying a nanny as an independent contractor could result in penalties and back taxes.

","

How to Calculate Nanny Taxes

","

","

Calculating the nanny tax will require you to determine the wages paid to your nanny and apply the correct tax rates. Here’s a step-by-step breakdown:

","$50","

Reporting and Paying Nanny Taxes

","

Once you have calculated the nanny taxes, you must follow the proper steps to report and pay them. The IRS requires household employers to file a Schedule H (Household Employment Taxes) with their personal federal income tax return. This form helps report all of the Social Security, Medicare and FUTA taxes you owe for your nanny.

","

Throughout the year, you will also need to withhold the correct amounts from your nanny’s paycheck and pay those taxes on a regular basis, typically quarterly. Many employers choose to work with a payroll service that specializes in household employees to manage these withholdings and payments, ensuring compliance with all tax laws.

","

For state unemployment taxes, you may be required to file a separate return with your state’s tax authority, so be sure to check local rules. Some states may require quarterly filings, while others may only need an annual return.

","

Exceptions to the Nanny Tax and Special Considerations

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Not every household worker is subject to the nanny tax. There are some exceptions to be aware of:

","

Family members: If your nanny is a close relative (and childcare is not their primary occupation), such as your child (under age 21), spouse or parent, you may not be required to pay the nanny tax.
Employees under 18 years of age: If your nanny is under the age of 18 at any time during the year, you may not need to withhold Social Security and Medicare taxes, unless the housework performed is their principal occupation.
Wages below the threshold: If you pay your nanny less than the annual threshold set by the IRS ($2,700 in 2024), you are not obligated to withhold or pay Social Security and Medicare taxes. However, you may still be responsible for unemployment taxes, depending on state laws.
Non-cash payments: If you provide your nanny with non-cash benefits, such as room and board, these can often be excluded from wages for the purpose of calculating taxes.

","

It’s also important to remember that the nanny tax applies to all household employees, not just nannies. If you hire a housekeeper, gardener or any other worker in your home, you may need to follow similar tax rules.

","

Penalties for Non-Compliance

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Failing to pay or properly report nanny taxes can lead to several serious consequences. The IRS may impose back taxes, interest and fines on unpaid amounts if household employers do not fulfill their tax obligations. In addition to these financial penalties, employers may also face additional legal fees and potential audits.

","

Employers who attempt to pay their nanny “under the table” to avoid taxes are at particular risk. If discovered, this could result in more severe penalties, including the payment of back taxes and interest, plus fines for tax evasion. In some cases, employers might be held liable for unpaid Social Security and Medicare taxes owed by the nanny, further increasing the financial burden.

","

To avoid these issues, it’s important to handle all tax matters related to household employees transparently and in accordance with federal and state regulations.

","

Bottom Line

","

","

Understanding and managing nanny taxes is an important part of hiring household employees. By familiarizing yourself with the tax requirements and learning how to handle withholdings for Social Security, Medicare and unemployment taxes, you can meet your obligations as an employer. Knowing the thresholds and exceptions helps ensure that you’re in compliance with federal and state laws. While it may seem complex at first, taking the necessary steps to calculate, report and pay these taxes can help you avoid penalties and maintain a professional, legal arrangement with your household employees.

","

Tax Planning

","$51","

Photo credit: ©iStock.com/SementsovaLesia, ©iStock.com/zamrznutitonovi, ©iStock.com/miljko

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Selling your longtime home and downsizing in retirement is a common practice for people entering their golden years. While profits from a home sale are considered capital gains, the IRS typically allows you to exclude part of the profit – if not all of it – from your taxes. But what if you sold your […]

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","

But what if you sold your home and pocketed as much as $640,000? You could still end up owing a hefty capital gains tax bill on the sale depending on if you’re married or not. Then again, you still may be able to avoid taxation by using other investment losses to offset your gain or delay taxes with a like-kind exchange. But if you need additional help managing your capital gains tax bill, consider speaking with a financial advisor.

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About Capital Gains Taxes

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When an investment appreciates and sells for more than its original purchase price, the profit gets taxed. This applies to assets like stocks, bonds, collectibles and real estate, including your personal residence.

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For assets that are owned for more than a year, the IRS applies long-term capital gains rates of 0%, 15% or 20%. The precise capital gains tax that will be applied depends on the taxpayer’s income, but capital gains taxes are generally lower than the ordinary income tax rates. Many U.S. states also tax capital gains, levying rates they use for ordinary income.

","

Gains on personal home sales are treated differently, however. You can exclude some or all of the gain from taxation if you lived in the home for at least two of the last five years (cumulatively). And when you’re getting ready to make a large financial decision, like selling your home to downsize, talk it over with a financial advisor who can help you understand how the move will impact your larger financial plan.

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Capital Gains Tax Impact

","

","

If you net $640,000 from the sale of your longtime home, your capital gains tax bill will depend on a couple of factors:

","

Filing status. This affects how much of the gain you can exclude. If you’re married and filing jointly, you can exclude up to $500,000 in home sale profits. This would leave $140,000 of the $640,000 subject to taxes. If you’re filing as an individual, you can exclude up to $250,000. In this case, $390,000 would be subject to taxes.
Income. Capital gains tax rates for most people are 0%, 15% and 20% based on their income.

","

Assuming you pay 15% on capital gains, you’ll owe $21,000 ($140,000*0.15) in federal taxes after applying the exclusion if you’re married and filing jointly. If your filing status is single, you’ll owe $58,500 in capital gains tax ($390,000*0.15). But remember, a financial advisor can help you plan for capital gains taxes and find ways to potentially mitigate them.

","

Avoiding Capital Gains Tax

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You have limited options for avoiding capital gains tax after applying the principal residence exclusion. However, there are some available techniques, including:

","$64","

And if you need advice regarding a 1031 exchange or the other strategies listed here, consider speaking with a financial advisor.

","

Capital Gains Tax Avoidance Limitations

","

","

These techniques can only be used in certain situations. For instance, special rules may apply if you inherited the home. Other limitations could also apply, including:

","

You may only be able to avoid taxes on a portion of your gains. Unless your gain is less than the allowable exclusion or you have sufficient offsetting losses, part of your gain may still be taxed.
A like-kind exchange only delays taxes. When you eventually sell the property you exchanged for, that sale will trigger taxes.
Not all properties qualify for exclusion. The capital gains exclusion for primary residences doesn’t apply to vacation homes or investment properties.
There are residency period conditions. Living in the home for less than two of the previous five years means you can’t use the exclusion. You may have to provide tax returns, utility bills and other documentation to show you lived there for the required time.

","

Bottom Line

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Homeowner who meets IRS conditions can exclude up to $500,000 in profits from the sale of their primary home from taxes ($250,000 if they’re single). However, a gain that exceeds the IRS exclusion limits will be subject to long-term capital gains taxes if the home was owned for more than a year. In that scenario, you could use tax-loss harvesting to offset part of the gain and lower your tax bill or a like-kind exchange to defer the taxes until a later date.

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Tips for Managing Capital Gains

","$65","

Photo credit: ©iStock.com/PeopleImages, ©iStock.com/skhoward, ©iStock.com/blackCAT

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Taxpayers can deduct medical expenses by itemizing them on their taxes. However, these deductions may be out of your reach as the current standard deduction is high. In 2024, the standard deduction is $14,600 for individuals and $29,200 for joint filers. Therefore, taxpayers generally itemize deductions if the total amount is greater than the standard deduction. If you itemize deductions, and you have unreimbursed expenses for necessary medical or dental care, you may be able to claim a tax deduction if they exceed 7.5% of your adjusted gross income. Here are five expenses you may be able to deduct.

","

A financial advisor can help you optimize your financial plan to lower your tax liability.

","

When Can You Deduct Medical Expenses?

","

In some cases, the IRS allows you to deduct medical costs, including dental expenses, from your taxes. In general, the following rules apply to any deduction you want to claim:

","

You must itemize your taxes, not take the standard deduction
The spending must have been on treatment for you, your spouse or your dependents
You can only deduct spending to the extent the expenses exceeded 7.5% of your AGI
The spending must have been unreimbursed by insurance or any other program
You must have spent the money yourself
In most cases, the treatment must be necessary rather than optional or cosmetic

","

The personal spending requirement means that you cannot claim a deduction for payments made on your behalf. And the deduction only applies to spending above the cap. For example, say that you make $100,000 in taxable income and have $10,000 in combined medical expenses. You cannot deduct the first $7,500 (7.5% * $100,000) but you can deduct the remaining $2,500 in spending.

","

Households with very significant medical bills may get more value from itemized medical deductions than the standard deduction. If you would like to check whether you can deduct your medical expenses, the IRS offers an interactive assistant. Here are five medical expenses the that the agency allows to deduct:

","

Health Insurance Premiums

","

Qualifying taxpayers can deduct the monthly premiums that they pay for insurance coverage. These include expenses to HMOs, long-term care insurance and Medicaid payments.

","

Not all insurance will qualify for this tax deduction, so make sure that your coverage does. It also applies to dental insurance, which can often be more expensive than medical coverage.

","

Dental Treatment

","

Even when you have dental insurance, it frequently doesn’t offer the same kind of comprehensive coverage as medical insurance. Often dental insurance simply reduces or restructures how you pay for treatment. As a result, even among individuals with insurance it’s common to pay significant out-of-pocket expenses for dental treatment.

","

This spending is tax deductible if you meet the general rules for medical deductions. That can include spending on cleanings, X-rays, fillings, braces and other treatments, but not for cosmetic processes like teeth whitening.

","

Medical Treatment Fees

","

Whether you see a private practitioner, a psychologist, a chiropractor, a surgeon, a specialist, or other form of medical practitioner, you can take a qualified deduction for treatment fees.

","

This deduction also can apply to nontraditional practitioners such as acupuncturists. It applies more broadly as well to treatment at rehabilitation centers, weight loss programs and cessation treatment for drugs, alcohol and smoking.

","

Finally, you can deduct the fees you pay for treatment at medical facilities. For example, a qualifying taxpayer can deduct their expenses for hospital care or a stay in a nursing home. This deduction can include all of your costs of care, not just direct medical treatment. For example, you can deduct the costs of food and lodging during a hospital stay.

","

Prescription Drugs

","

After treatment, a patient may need to pay out of pocket for insulin and other prescription drugs. So long as you meet the qualifications, and the drugs are considered necessary rather than cosmetic or otherwise optional, this spending is tax deductible.

","

As with dental treatment, this is a common source of significant expenses since insurance often will not fully cover drug costs.

","

Medical Aids and Devices

","

Medical devices are in a broad category, and you can deduct qualified spending within it.

","

While medical devices generally apply to urgent care, such as pacemakers and oxygen tanks, it can also refer to much more common spending as well. For example, you can deduct expenses for eyeglasses, contact lenses, hearing aids, crutches, wheelchairs and service animals.

","

For most households, if you itemize your taxes, there’s a good chance that you will have some medical device spending to claim.

","

Bottom Line

","

\"An — Focused young Caucasian male employee sit at desk at home office work on computer reading paperwork. Concentrated man worker busy using laptop consider financial documents at workplace.

","

Most forms of medical spending, from insurance premiums to treatment, are tax deductible if you meet the IRS’ requirements. To claim this deduction you must take itemized deductions rather than the standard deduction and must have spent more than 7.5% of your income on qualified medical bills.

","

Medical Savings Tips

","$7d","

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Perhaps your daughter recently got married and you want to help her and her husband start their new life. Or maybe they suddenly find themselves in need of financial assistance and turn to you for help. Fortunately, the IRS allows you to give away a certain amount of assets – from real estate and stocks […]

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Chris studied communications in Austria and ultimately graduated with a journalism degree from Montclair State University, where he also received the coveted Journalism Achievement Award.","additionalMeta":{"expertise":"Retirement, Estate Planning, Savings, Taxes","__typename":"User_Additionalmeta"},"email":null,"firstName":"Chris","fullName":"Chris Thompson","lastName":"Thompson","name":"Chris Thompson","postCount":{"pageInfo":{"offsetPagination":{"total":75,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"cthompson","__typename":"User"},"reviewedBy":null,"writtenBy":null,"factCheckedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. 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","

Fortunately, the IRS allows you to give away a certain amount of assets – from real estate and stocks to cold hard cash – free of taxes every year. In 2024, you can give away up to $18,000 to an individual and not have to pay taxes on the transfer. In fact, you’ll only trigger taxes in 2024 if you’ve given away more than $13.61 million throughout your life.

","

Understanding the ins and outs of strategic gifting can be important, especially for the wealthy. Speak with a financial advisor today.

","

What Is The Gift Tax?

","

A gift is any unilateral transfer of money or property. This means that you give someone assets without receiving either fair value or any value in return. The term “fair value” applies to when you give someone an asset in exchange for payment significantly below its market price. It applies to any kind of transaction so, for example, giving someone real estate, a low-interest loan or access to an income stream would all apply. The classic gift is to simply give someone cash while receiving nothing in return.

","

There are several exceptions to what the IRS considers a taxable gift. For example, money given to a claimed dependent does not constitute a gift, nor does paying someone’s tuition. However, outside defined exceptions, any unilateral or below-market transfer is considered a gift.

","

When you make someone a large enough gift, it becomes taxable. The IRS taxes applicable gifts at between 18% and 40% depending on the size of the transfer. You, as the gift giver, pay this tax. Due to the gift tax’s exemptions, it also generally applies only to the very wealthy. But if you need additional help navigating and planning for the gift tax, consider working with a financial advisor.

","

Gift Tax Exemption

","

","

Broadly speaking, the purpose of the gift tax is to prevent people from avoiding estate taxes by simply giving away all their money before they die. As a result, the gift tax only applies to transfers that exceed two fairly high caps.

","

The first cap is called the annual exclusion. This is the amount of money that you can give away every year without triggering the tax. The annual exclusion is set on a per-recipient basis, meaning that it applies separately to each person to whom you give a gift, and there is no limit to the number of people you can give gifts to under this exemption. In 2023, the annual exclusion limit was $17,000 for individuals and $34,000 for married couples. In 2024, it increases to $18,000 and $36,000, respectively.

","

The second cap is called the lifetime exemption. This is the amount of money that you can give away throughout your lifetime – and after your death – without triggering either gift or estate taxes. The lifetime exemption is set on a per-donor basis, meaning that all of your gifts/estate collectively apply. It also increases each year, so that even if you have already met the lifetime exemption, each year you can give a little bit more away without triggering any taxes. In 2023, the lifetime exemption was set at $12.92 million for individuals, which allows married couples to give away up to $25.84. In 2024, the lifetime exemption will increase to $13.61 million for individuals and $27.22 million for married couples.

","

Giving a gift together, as a married couple, is referred to as “gift-splitting.” It allows you to take the doubled exemption rates, but both spouses must consent to the gift and claim it on their tax returns. Either way, whenever you give someone a gift worth more than the annual exclusion you must file Form 709 with your taxes the year after you make the transfer. So, for example, if you give someone $25,000 in 2024, you would file Form 709 with your tax year 2024 forms in 2025.

","

Whether you want to make a small financial gift or a large one, talking it through with a financial advisor first can potentially help you avoid unexpected tax bills.

","

How Much Money Can You Gift

","

","

So let’s look at how the gift tax applies if you’re hoping to give money to your daughter and her spouse:

","

Let’s say you’re single and looking to give them a generous financial gift in 2024. You would be able gift a total of $36,000 – $18,000 to your daughter and $18,000 to her spouse – without having to pay taxes on the gifts.

","

However, you can still give them more than the $18,000 exclusion limit. Any individual gift that exceeds this annual cap simply counts against your lifetime exemption. So, if you gave them $60,000 in 2024, your gifts would be $24,000 over the annual exclusion. This would lower your lifetime exemption from $13.61 million to $13.586 million.

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In theory, you could give your daughter and her spouse $36,000 in 2024, and transfer up to $13.61 million in additional assets without having to worry about the gift tax. As a result, you could potentially give them up to $13.646 million in 2024 if your entire exemption was intact.

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But don’t forget that the annual exemption renews every year. If you choose, you can create a structured gift that gives your daughter and son-in-law the annual maximum each year indefinitely. You can also top up your gift with each year’s lifetime exemption update.

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However, if you need guidance on how much you’re eligible to gift, consider connecting with a financial advisor using SmartAsset’s free matching tool.

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Bottom Line

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The amount that you can gift someone tax-free will depend on how much you have given them this past year and how much you have gifted in total over your lifetime. The IRS allows you to give $17,000 to as many recipients as you want in 2023 and $18,000 in 2024. Gifts that exceed the annual exclusion count against your lifetime exemption limit, which rises to $13.61 million in 2024 from $12.92 million in 2023.

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Estate Planning Tips

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