How do you pay taxes for a nanny? Why are there so many expensive services to calculate this tax?

Answer 1

One has to withhold federal and state tax withholding plus social security tax. The nanny has to file tax returns to obtain a refund on her withholding taxes.

Do not trust the other poster's outdated and advertising related websites:

http://www.irs.gov for calculating withholding
Your state'd website for calculating state withholding
6.2% for Social Security - double that.
1.45% for Medicare - double that.

One can calculate the tax without retaining the services of an accountant - but many wealthy people have accountants on retainer for such events.

Answer 2

Do not forget that you will also need to include everything on your 1040 at the end of the year - Schedule H. I suggest engaging a CPA or Enrolled Agent if you do not already have one.

Answer 3

Here's some calculators:
http://www.householdemploymenttaxes.com/calculate.shtml
http://www.4nannytaxes.com/calculator/taxcalc.cfm

And software:

http://www.essentia-soft.com/

and more info:
http://www.4nanny.com/nanny_taxes.shtml