Can I Pay my Nanny Through my Business Payroll?

Mar 1, 2024 | Household Payroll & Taxes, Tax & Wage Laws

If you run a business and employ household help, can you pay that employee through your company payroll? This is a common tax question that can affect your personal and company finances. The short answer is no – a household employee shouldn’t be paid by a corporate entity through their business payroll. Here’s why.

If you run a business and employ household help like a nanny, senior caregiver, or housekeeper, can you pay that employee through your company payroll?

This is a common tax question that can affect your personal and company finances.

The short answer is no – a household employee shouldn’t be paid by a corporate entity through their business payroll.

Why can’t a household employee be added to a business payroll?

A household employer may want to put their nanny or other household employee on their business payroll to avoid paying separate household employment taxes.

Also, businesses are allowed to take tax deductions on the payroll of employees who are “direct contributors to the success of the business.”

However, a nanny or other household employee does not directly impact a business. Trying to pay a household employee through a company’s payroll is considered illegal by the IRS.

Are tax deductions available to household employers?

When employing a nanny or, in some cases, a senior caregiver, a household employer can reduce the amount they owe in household employment taxes by taking a personal tax deduction on their federal income tax return through the Child and Dependent Care Credit. They may also use a Dependent Care FSA offered through their own employer. Depending on your tax bracket, these tax breaks can typically cover most, if not all, of your household employment tax obligations.

Why is it important to pay a household employee separately from my business?

A household employer may not think they will get caught paying their nanny through their business payroll, but it can easily happen.

A nanny who loses their job through no fault of their own can file for unemployment. Or they get hurt on the job and file a workers’ compensation claim. The household employer will be exposed for paying their nanny illegally. This can lead to large fines and penalties, impacting not only your family but your business as well.

Paying your employees legally and complying with current employment regulations limits your exposure and reduces the risks of fines, penalties, and audits.

There is one exception to this regulation. A sole proprietor of a business or farm with household employees can report their household payroll taxes on their company’s Form 941 or Form 943 (if the business is a farm) for ease of filing. But that doesn’t mean they can put their household worker on their business payroll. Only that they can report household employment taxes on Form 941 or Form 943.

To keep it simple, GTM recommends keeping household payroll taxes separate from business-related taxes. A household employer should file Schedule H for household employment taxes and Form 941 (or Form 943) for business taxes.

GTM can help

Questions about household employment? As we said, it’s important to get this right to avoid the risks of fines, penalties, and audits. Take advantage of a complimentary consultation with a household employment expert at (800) 929-9213 or schedule time with us at your convenience. We’ll also show you how GTM can make payday easy for you and your employee; remit your employment taxes on time, every time; and bring you peace of mind knowing you’re nanny payroll and taxes are being managed the right way.