Exemptions

• You do not have to pay taxes on your nanny's salary if he made less than $1,700. In addition, you do not have to pay taxes on babysitters under the age of 18 if they are not full-time nannies or have another principal occupation such as being a student. You also do not have to pay taxes if you hire a relative, such as a parent, spouse or child under the age of 21 to watch your children when you are at work.
  
  

Withholding

• Most people do not withhold taxes from their nanny's paycheck, As of 2011, this practice makes you responsible for paying taxes of 13.3 percent on her salary. For example, if your nanny make $10,000 for the year, you must pay federal taxes of $1,330. If you prefer, you can withhold 5.65 percent of your nanny's pay each pay period and forward it to the IRS as well as pay taxes of 5.65 percent of her salary yourself. Have your nanny fill out a W4 form and submit it to the IRS if you intend to do this.
  
  

Federal Unemployment Tax

• If your nanny made more than $1,000 in any one quarter of the tax year, you must pay federal unemployment taxes on the first $7,000 of her wages unless you hired your parent, spouse or child under the age of 21. As of 2011, the FUTA rate is 0.8 percent. Thus, if your nanny earned the maximum taxable income for this purpose, $7,000, you would have to pay taxes of $56. However, you must pay any state unemployment tax due by April 15 of the following year or your FUTA rate will jump to 12.5 percent.
  
  

Paying Nanny Tax

• Pay your nanny taxes on Schedule H of Form 1040 each year. Schedule H requires you to include the amount you would have withheld if you had withheld taxes in your nanny's income. Thus, if your nanny made $7,000 for the year, you must report her income as $7,535.50 on Schedule H. Complete the calculations on Schedule H to determine how much nanny tax you owe for the tax year.