Nanny taxes and payroll service
For Federal Return, Schedule H and its Instructions are a great start.  You are the nanny's employer, and are responsible for FICA (social security and medicare) withholding, and also paying the employer portion.  You will offer her a W4 so she can tell you how much federal and state tax to withhold. You'll use Circular E the employer's tax guide to calculate withholding. In January, you'll give her a W-2, and file the information with your own tax return.  For State, some of the above applies, but as I recall, in my state, I had to submit withholding quarterly separate from my return. As compared to Federal, where I adjusted my own withholding so at year end the tax paid was correct. Unemployment insurance also needs to be paid, I believe this is state.  This issue is non-political - I told my friends at the IRS that (a) the disparity between state and federal to handle the nanny tax was confusing for those of us trying to comply, and (b) even though we are treated as an employer, a 'guide to the nanny tax' would be helpful, a single IRS doc that doesn't mix non-nanny type issues into the mix.  In the end, if a service is cost effective, go for it, your time is valuable, and thi is something that only lasts a few years. Whether to employ a payroll service to handle the taxes (and possibly the payroll itself) is a matter that depends on how savvy you are with respect to your own taxes and with using computers in general. If you are comfortable using programs such as Excel, or Quicken, or TurboTax, or TaxAct etc, then taking care of payroll taxes on a nanny's wages all by yourself is not too hard.  If you take a shoebox full of receipts and paystubs to your accountant each April to prepare your personal income tax returns and sign whatever the accountant puts in front of you as your tax return, then you do need to hire a payroll service. It will also cost you a bundle since there are no economies of scale to help you; there is only one employee to be paid.
Sounds you need to read up on S corp structures. I think this would benefit you if you generate income even after you physically stopped working which is incomes from membership fees, royalties % of customer revenue, middle man etc...  Under the Scorp, you as the sole member must earn a wage that fair and at current market value. You pay social security and Medicare on this wage. The interesting thing here is that an Scorp can pay out earning dividends  without having to pay payroll taxes but the catch is that you, as the sole employee must earn a fair wage.   As for paying the other member you may want to look into 1099 contract work plus a finders fee. The 1099 hourly wage does not require you to pay Medicare and SS.   The common fee I'm used to is 5% of gross invoice. Then you would pay her an hourly wage. The company then bills these hours multiplied by 2 or 3 (or whatever you think is fair) to the client. Deduct expenses from this and that's your profit.   Example. Contractor brings Client A which is estimated as a  100 hour project with $100 cost in supplies and requires 2 hours of your time @ $40/hr.   You quote 100 hours @ $50 to client, client agrees and gives you down payment.   You then present the contract work to your contractor, they complete the work in 100 hours and bill you at $25.   You pay your contractor 2500 plus the 5% ($250)  and your company earns $2070 (5000 - 2500 - 100-80)  And you'll earn $80 minus the payroll tax.   Then at the end of the quarter or year or however you want to do earning payouts your LLC- Scorp will write you a check for $2070 or whatever earning % you want to take. This is then taxed at your income tax bracket.   One thing to keep in mind is what is preventing this other person from becoming your competition? A partnership would be great motivation to try and bring in as much work under the LLC. But if you start shafting people then they'll just keep the work and cut you out. "The translation scheme is detailed in IRS Publication 15, ""Employer's Tax Guide"". For the 2010 version, the information is in Section 16 on Page 37. There are two ways that employers can calculate the withheld tax amount: wage bracket and percentage. Alternatively, they can also use one of the methods defined in IRS Publication 15-A. I'll assume the person making $60k/yr with 10 allowances is paid monthly ($5000/period) and married. Using the wage bracket method, the amount withheld for federal taxes would be $83 per pay period. Using the percentage method, it would be $81.23 per pay period. I don't recommend that you use this information to determine how to fill out your W-4. The IRS provides a special online calculator for that purpose, which I have always found quite accurate. Note: ""allowances"" are not the same as ""dependents""; ""allowances"" are a more realistic estimation of your tax deductions, taking into consideration much more than just your dependents." Yes, you are the proprietor of the business and your SSN is listed on Schedule C. The information on Schedule C is for your unincorporated business as a contractor; it is a sole proprietorship. You might choose to do this business under your own name e.g. Tim Taylor (getting paid with checks made out to Tim Taylor) or a modified name such as Tim the Tool Man Taylor (this is often referred to as DBA - Doing Business as), under a business name such as Tool Time etc. with business address being your home address or separate premises, and checking accounts to match etc. and all that is what the IRS wants to know about on Schedule C.  Information about the company that paid you is not listed on Schedule C. "We will bill our clients periodically and will get paid monthly. Who are ""we""? If you're not employed - you're not the one doing the work or billing the client. Would IRS care about this or this should be something written in the   policy of our company. For example: ""Every two months profits get   divided 50/50"" They won't. S-Corp is a pass-through entity. We plan to use Schedule K when filing taxes for 2015. I've never filled a schedule K before, will the profit distributions be reflected on this form? Yes, that is what it is for. We might need extra help in 2015, so we plan to hire an additional   employee (who will not be a shareholder). Will our tax liability go   down by doing this? Down in what sense? Payroll is deductible, if that's what you mean.  Are there certain other things that should be kept in mind to reduce the tax liability? Yes. Getting a proper tax adviser (EA/CPA licensed in your State) to explain to you what S-Corp is, how it works, how payroll works, how owner-shareholder is taxed etc etc." This is how a consulting engagement in India works. If you are registered for Service Tax and have a service tax number, no tax is deducted at source and you have to pay 12.36% to service tax department during filing (once a quarter). If you do not have Service tax number i.e. not registered for service tax, the company is liable to deduct 10% at source and give the same to Income Tax Dept. and give you a Form-16 at the end of the financial year. If you fall in 10% tax bracket, no further tax liability, if you are in 30%, 20% more needs to be paid to Income Tax Dept.(calculate for 20% tax bracket). The tax slabs given above are fine. If you fail to pay the remainder tax (if applicable) Income Tax Dept. will send you a demand notice, politely asking you to pay at the end of the FY. I would suggest you talk to a CA, as there are implications of advance tax (on your consulting income) to be paid once a quarter. Using the http://calculators.ato.gov.au/scripts/asp/simpletaxcalc/main.asp calculator and noting all the caveats (Medicare etc) and assuming everything is proportionate you get: You earn: $110,000 less $28,647 tax = $81,353 She earns: $54,000 less $9,097 tax = $44,903 Total net: $126,256 You earn: $88,000 less $20,507 tax = $67,493 She earns: $72,000 less $14,947 tax = $57,053 Total net: $124,546 So, there is about $1,710 in it per annum or $33/week. Long day care will be setting you back $75-185/day so this is pretty small beans. This is all back of the envelope stuff and probably worth paying a few hundred dollars to an accountant to work it all out. "You're getting paid by the job, not by the hour, so I don't see why you think the employer is obligated to pay you for the drive time.  The only way that might be true, as far as I can see, is if he were avoiding paying you minimum wage by structuring your employment this way.  It looks like to me you're over the minimum wage based on what you wrote.  At maximum ""unpaid"" drive time (59 min each way) and maximum length of job (4 hours as you stated it), gives your minimum hourly rate of $8.83/hr. The federal minimum wage is currently $7.25/hr, so you're over that.  A quick search online suggests that NV does have a higher minimum at $8.25/hr under some conditions, but you're still over that too. The fact that you're required to pick-up the helpers and that you have a company car at home probably does mean that you're ""on the clock"" from the moment that you leave your house, but, again, you're not actually being paid by the clock.  As long as no other law is being broken (and it appears from your telling that there isn't), then the employer can set any policy for how to compute the compensation that he wants. Regarding taxes, the employer probably has no discretion there.  You're making what you're making, and the employer needs to tax it in total.  Since you're driving a company vehicle from home, I don't think that you're entitled to any reimbursement (vs. wages) that would not be taxed unless maybe you pay for gas yourself.  The gas money, if applicable, should be reimbursable as a business expense and that generally would not be taxed." PSB taxed at higher rates. PSB is taxed at 39.5% in Ontario, as the article mentioned. But if you pay all the net income to yourself as salary, you expense it and zero it out on the corporate level. So who cares what tax rate it is if the taxable income is zero? No-one. Same goes for the US, by the way. Personal Service Corporations are taxed at flat 35% Federal tax rate. But if you pour all the income into your salary - its moot, because there's no net income to pay tax of. If it's too complicated to figure out, maybe it would be wise to hire a tax accountant to provide counsel to you before you make decisions about your business. Very grey area. You can't pay them to run errands, mow the lawn, etc. I'd suggest that you would have to have self employment income (i.e. your own business) for you to justify the deduction. And then the work itself needs to be applicable to the business. I've commented here and elsewhere that I jumped on this when my daughter at age 12 started to have income from babysitting. I told her that in exchange for her taking the time to keep a notebook, listing the family paying her, the date, and amount paid, I'd make a deposit to a Roth IRA for her.  I've approaches taxes each year in a way that would be audit-compliant, i.e. a paper trail that covers any and all deductions, donations, etc. In the real world, the IRS isn't likely to audit someone for that Roth deposit, as there's little for them to recover. You will most likely pay around 30%, between standard income tax and payroll taxes. That is a good place to start. If you live in a state/city with income taxes, add that to the mix. "Take a look at IRS Publication 15. This is your employer's ""bible"" for withholding the correct amount of taxes from your paycheck. Most payroll systems use what this publication defines as the ""Percentage Method"", because it requires less data to be entered into the system in order to correctly compute the amount of withholding. The computation method is as follows: Taxes are computed ""piecewise""; dollar amounts up to A are taxed at X%, and then dollar amounts between A and B are taxed at Y%, so total tax for B dollars is A*X + (B-A)*Y. Here is the table of rates for income earned in 2012 on a daily basis by a person filing as Single: To use this table, multiply all the dollar amounts by the number of business days in the pay period (so don't count more than 5 days per week even if you work 6 or 7). Find the range in which your pay subject to withholding falls, subtract the ""more than"" amount from the range, multiply the remainder by the ""W/H Pct"" for that line, and add that amount to the ""W/H Base"" amount (which is the cumulative amount of all lower tax brackets). This is the amount that will be withheld from your paycheck if you file Single or Married Filing Separately in the 2012 TY. If you file Married Filing Jointly, the amounts defining the tax brackets are slightly different (there's a pretty substantial ""marriage advantage"" right now; withholding for a married person in average wage-earning range is half or less than a person filing Single.). In your particular example of $2500 biweekly (10 business days/pp), with no allowances and no pre-tax deductions: So, with zero allowances, your employer should be taking $451.70 out of your paycheck for federal withholding. Now, that doesn't include PA state taxes of 3.07% (on $2500 that's $76.75), plus other state and federal taxes like SS (4.2% on your gross income up to 106k), Medicare/Medicaid (1.45% on your entire gross income), and SUTA (.8% on the first $8000). But, you also don't get a refund on those when you fill out the 1040 (except if you claim deductions against state income tax, and in an exceptional case which requires you to have two jobs in one year, thus doubling up on SS and SUTA taxes beyond their wage bases). If you claim 3 allowances on your federal taxes, all other things being equal, your taxable wages are reduced by $438.45, leaving you with taxable income of $2061.55. Still in the 25% bracket, but the wages subject to that level are only $619.55, for taxes in the 25% bracket of $154.89, plus the withholding base of $187.20 equals total federal w/h of $342.09 per paycheck, a savings of about $110pp. Those allowances do not count towards other federal taxes, and I do not know if PA state taxes figure these in. It seems odd that you would owe that much in taxes with your withholding effectively maxed out, unless you have some other form of income that you're reporting such as investment gains, child support/alimony, etc. With nobody claiming you as a dependent and no dependents of your own, filing Single, and zero allowances on your W-4 resulting in the tax withholding above, a quick run of the 1040EZ form shows that the feds should owe YOU $1738.20. The absolute worst-case scenario of you being claimed as a dependent by someone else should still get you a refund of $800 if you had your employer withhold the max. The numbers should only have gotten better if you're married or have kids or other dependents, or have significant itemized deductions such as a home mortgage (on which the interest and any property taxes are deductible). If you itemize, remember that state income tax, if any, is also deductible. I would consult a tax professional and have him double-check all your numbers. Unless there's something significant you haven't told us, you should not have owed the gov't at the end of the year." Payroll taxes are only paid on salary, so you will be paying SS Tax and Medicare only on the $60,000 you pay yourself.  You will still pay income tax on the distribution, of course, but the payroll tax savings seem significant (~$13K according to the calculator below). While tinkering with a new web technology some time ago, I created this JsFiddle application.  I can't swear to its correctness, but I'm pretty sure it's solid (use the UI in the bottom right quadrant of the screen): http://jsfiddle.net/psandler/NKAZd/ I'm not sure why you're confusing the two unrelated things. 1040ES is your estimated tax payments. 941 is your corporation's payroll tax report. They have nothing to do with each other. You being the corporation's employee is accidental, and can only help you to avoid 1040ES and use the W2 withholding instead - like any other employee. From the IRS standpoint you're not running a LLC - you're running a corporation, and you're that corporation's employee. While technically you're self-employed, from tax perspective - you're not (to the extent of your corporate salary, at least). Forms 1099 and W2 are mutually exclusive. Employers file both, not the employees. 1099 is filed for contractors, W2 is filed for employees. These terms are defined in the tax code, and you may very well be employee, even though your employer pays you as a contractor and issues 1099. You may complain to the IRS if this is the case, and have them explain the difference to the employer (at the employer's expense, through fines and penalties). Employers usually do this to avoid providing benefits (and by the way also avoid paying payroll taxes). If you're working as a contractor, lets check your follow-up questions: where do i pay my taxes on my hourly that means does the IRS have a   payment center for the tax i pay. If you're an independent contractor (1099), you're supposed to pay your own taxes on a quarterly basis using the form 1040-ES. Check this page for more information on your quarterly payments and follow the links. If you're a salaried employee elsewhere (i.e.: receive W2, from a different employer), then instead of doing the quarterly estimates you can adjust your salary withholding at that other place of work to cover for your additional income. To do that you submit an updated form W4 there, check with the payroll department on details. Is this a hobby tax No such thing, hobby income is taxed as ordinary income. The difference is that hobby cannot be at loss, while regular business activity can. If you're a contractor, it is likely that you're not working at loss, so it is irrelevant. what tax do i pay the city? does this require a sole proprietor   license? This really depends on your local laws and the type of work you're doing and where you're doing it. Most likely, if you're working from your employer's office, you don't need any business license from the city (unless you have to be licensed to do the job). If you're working from home, you might need a license, check with the local government. These are very general answers to very general questions. You should seek a proper advice from a licensed tax adviser (EA/CPA licensed in your state) for your specific case. Payroll is undeniably one of the most important part of any business and it very important that you have a timely payroll every month. To avoid the hassle of payroll processing, it is best to get the service outsourced. We,DHpayroll, will be more than happy to offer you our expert services.