Nanny Taxes Q&A

Answers to Your Nanny Tax Questions

Starting on your nanny taxes and have no idea where to begin? You’re not alone and we’re here to help. Here are answers to some of the most common questions household employers have about their nanny taxes.

1. What is the nanny tax?

The nanny tax refers to the employment taxes paid when a family or individual hires someone to work in their home. This is typically a nanny who looks after children but also includes in-home elder care workers, housekeepers, household managers, butlers, and drivers. Household employees and their employers pay Social Security and Medicare taxes on the worker’s wages. Employees also pay federal and state (if applicable) income taxes. Employers pay federal and state unemployment taxes. Essentially, for tax purposes, household employees are treated the same as traditional employees.

2. Do I need to pay taxes on my household employee?

If you paid cash wages of $2,100 (2018) to any one household employee, then you have a tax responsibility.

You also owe federal unemployment tax (FUTA) if you paid total cash wages of $1,000 or more in any calendar quarter to a household employee.

This does not apply if your household employee was your spouse, child under age 21, parent, or any employee under the age of 18 at any time in the current tax year.

3. Can I file nanny taxes on my own?

The IRS estimates that it takes a household employer 60 hours each year to comply with all federal and state tax laws. It can get complicated and time-consuming. You’ll need to adhere to all applicable federal and state tax, labor, and wage laws like the Fair Labor Standards Act and Domestic Workers Bill of Rights. Some household employers rely on their accountant or a firm like GTM Payroll Services to handle payroll processing and tax filings.

Before handling nanny taxes and payroll on your own, we suggest you download The Complete Guide to Household Payroll. This guide will help you every step of the way and explain what you need to do and why. There’s even a handy checklist and payroll calendar at the end of the guide to use as references.

However you proceed, it’s important to do to it the right way. There can be steep financial consequences if you fail to properly pay your nanny taxes.

4. My nanny is not a U.S. citizen. Do I still need to pay nanny taxes?

For tax purposes, you’ll treat a noncitizen who is your employee the same as if they were a citizen. However, only noncitizens authorized to work in the U.S. by the Department of Homeland Security can get a Social Security number and be eligible for employment.

5. I’ve paid my nanny cash throughout the year. How do I file nanny taxes?

First, it’s illegal to pay your nanny in cash or check without documentation of pay rate, hours worked, taxes withheld, and more provided to your employee on payday.

Hopefully, you’ve kept track of your nanny’s wages for the year. If you have their gross wages, you can begin to calculate what you and your employee owe in taxes. Time is of the essence as Form W-2 must be provided to your employee and the Social Security Administration by January 31. You and your employee should be prepared to take on a hefty tax bill as well. Since you haven’t been withholding taxes during the year, the entire tax amount is due by April 15.

Make it a point to follow federal and state tax, wage, and labor laws when it comes to paying your nanny. Withhold taxes from each paycheck and remit quarterly.

6. Does my household employee receive a 1099 or W-2?

Nannies, housekeepers, in-home elder care providers, and other domestic workers are considered employees and not independent contractors. They should receive Form W-2 by January 31. You will also need to file Copy A of Form W-2 and Form W-3 with the Social Security Administration by the same date.

7. How much do I owe in nanny taxes?

You are responsible for paying 7.65 percent of your employee’s gross pay in Social Security and Medicare taxes. Your employee will be responsible for the same amount. Each of you will pay 6.2 percent towards Social Security and 1.45 percent to Medicare.

FUTA is six percent of wages up to $7,000 in earnings. Your employee is not responsible for this tax.

8. How do I pay my nanny taxes?

You’ll need to file Schedule H with your personal tax return. This form is used to report household employment taxes on wages subject to Social Security, Medicare, FUTA, and any federal income tax withheld from your employee’s pay.

If you haven’t been doing so, you may want to remit your taxes quarterly using Form 1040-ES. This will help spread your tax burden over the course of the year rather than as a lump sum at the end of the year.

9. What tax forms do I need to file my taxes?

First, you’ll want to confirm your employee’s legal name, Social Security Number, and current address. These are needed to distribute Form W-2 to your employee as well as Copy A of the W-2 and Form W-3 to the Social Security Administration.

To file Schedule H, you’ll need:

• Your Employer Identification Number (EIN)
• Total cash wages you paid to your employee this year
• Amount of federal income tax you withheld from your employee’s pay
• Amount you paid in state unemployment taxes

If you want to take advantage of the Child and Dependent Care Tax Credit, you’ll need Form 2441.

10. What about state and/or local taxes?

These are based on residency requirements and vary by state. It’s recommended that you contact your state’s tax agency (or visit their website) to determine how best to pay applicable taxes. As with your federal taxes, you can pay your state obligations quarterly to help spread your payments over the course of a year instead of as a lump sum when you file your income taxes.

11. As a business owner, can I put my household employee on my business payroll?

No, it is illegal to place your household employee on your business payroll. A household employee is an employee in your home, not your business. Therefore you would not qualify to take the tax deductions you’re allowed to take with a traditional business employee.

12. How do I get help with my nanny taxes?

Filing taxes as a household employer isn’t easy. And you don’t have a lot of time. W-2s are due to your employee and the Social Security Administration by January 31. Your personal tax return with Schedule H is due April 15.

We’re here to help. Call GTM Payroll Services at (800) 929-9213 and a household employment expert can answer your questions. Ask us about our tax service and how we can take care of your back taxes and Schedule H. Or, if you prefer, you can email or chat with us.

The IRS website – IRS.gov – and your accountant may also be able to provide some assistance.