What is the nanny tax?
As a household employer, do I have to pay taxes on my employee?
Answer – Yes. As a household employer, if you pay cash wages of $2,200 or more in 2020 (or $2,100 in 2019) to your employee, you must withhold Social Security and Medicare taxes. Employers are not required to withhold Federal and State income taxes unless it is agreed upon by both parties. If income taxes are not withheld throughout the year, your nanny will be responsible for paying them at the end of the year. If you pay a total of $1,000 or more per quarter to a household employee you must pay federal unemployment tax. This does not apply if your household employee is your spouse, child under age 21, parent, or any employee under the age of 18 at any time in the current tax year.
How much will I owe in nanny taxes?
You will also pay FUTA (unemployment tax), which is six percent of wages up to $7,000 in earnings. Your employee is not responsible for this tax.
Can I file nanny taxes on my own?
Before handling nanny taxes and payroll on your own, we suggest you visit 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 it the right way. There can be steep financial consequences if you fail to properly pay your nanny taxes.
My friends pay their employees off the books. Can I?
Answer – According to IRS Publication 926, employers must withhold taxes if their employee earns $2,200 or more in 2020 (or $2,100 in 2019). It is each individual employer’s responsibility to withhold taxes according to this. GTM strongly recommends that you review the tax laws regarding household employment.
What are the risks of non-compliance?
My nanny is not a U.S. citizen. Do I still need to pay nanny taxes?
Can I treat my household employee as an independent contractor?
Does my household employee receive a 1099 or W-2?
I own a business. Can I put my household employee on my payroll?
In most cases, federal household employment taxes must be paid on the employer’s personal federal income tax return, either annually or quarterly. The only exception to reporting federal household employment taxes on the employer’s personal federal income tax return is if they are a sole proprietor or if their home is on a farm operated for profit. In either of these cases, the employer may opt to include federal household employment taxes with their federal employment tax deposits or other payments for the business or farm employees. For more information, refer to IRS Publication 926.
Should I talk to my employee in terms of gross pay or net pay?
Answer – It’s always best to talk in terms of gross pay for several reasons:
- Your employer taxes are based on top of the gross wages, making budgeting easier
- Tax tables change on average once a year, so there is no guarantee that the net that you agree on with the employee will remain the same
- Overall, it is less costly for you to speak in terms of gross pay because your employee’s taxes are deducted from the gross wages rather than being added on top of the net.
Can you explain the specifics of a nanny share?
Answer – Families love the benefits of a nanny share as they enjoy personalized, in-home care for their children while sharing the costs with another family. In a nanny share two (or more) families hire a nanny who typically cares for children in one of the family’s homes. Before getting started on your nanny share, read How to Set Up a Nanny Share for steps and best practices for setting up and maintaining successful relationships with your nanny share family and nanny.
What if my employee cannot provide documents for the I-9 form?
Answer – As the employer, it is your responsibility to provide an I-9 form to your employee within three days of hiring. It is also your responsibility to review the documents received from your employee to ensure they are valid and not expired. If your employee is unable to provide the documents needed to support the proof of their work authorization legally, you should not hire them. If you are unsure of the eligibility of your employee, you can always verify the information they have provided using the E-Verify program at www.uscis.gov.
Am I required to pay overtime?
Answer – According to the U.S. Department of Labor, the federal Fair Labor Standards Act (FLSA) requires employers to pay overtime pay of one and a half times the regular pay rate. Overtime pay must be paid for work over 40 hours per week. However, some live-in nannies are exempt from overtime depending on the state in which they are employed.
Employees hired to provide baby-sitting services on a casual basis, or to provide companionship services for those who cannot care for themselves because of age or infirmity, are exempt from the FLSA’s minimum wage and overtime requirements, whether or not they reside in the household where they are employed.
State and local laws for overtime vary and may supersede the federal FLSA law. Consult a certified professional at GTM for more information by calling (800) 929-9213, or contact your state’s Department of Labor for your state’s specific laws. A household employer should specify in the work agreement when approved overtime can occur and what the specific rate of pay will be to avoid conflict when the issue arises. Click here to estimate these costs using GTM’s Overtime Rate Calculator.
How do I pay my nanny taxes?
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.
What tax forms do I need to file my taxes?
Answer – 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 in 2019
- 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.
I’ve paid my nanny cash throughout the year. How do I file nanny taxes?
Hopefully, you’ve kept track of your nanny’s wages for the year. If you have their gross wages, you can use a nanny tax calculator and 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.
Am I required to provide vacation or other paid time off to my employees?
Answer – While vacation and other paid time off is not a requirement, it is a popular benefit provided to household employees and is a major contributor to job satisfaction, according to many nannies. All time off payments should be agreed upon by the employer and employee prior to hiring and should be clearly defined in both the work agreement and employee handbook.
Do I have to provide worker's compensation insurance?
What tax breaks do I receive?
Answer – There are two main tax breaks that can offset your employer tax costs. If you are legally employing someone in your home (paying “on the books”), you will be able to take advantage of one of the two following tax breaks:
- Dependent Care Assistance Program (DCAP) – Most companies provide this benefit and allow employees to contribute up to $5,000 of pre-tax earnings to a Dependent Care account. You would then be reimbursed these tax-free funds to cover childcare expenses.
- Child and Dependent Care Tax Credit – For those who don’t have access to a Dependent Care Account, youcan claim the Child and Dependent Care Tax Credit (Form 2441) on your personal income tax return at year-end. You can claim up to $3,000 of the un-reimbursed qualifying child care expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals. The credit can be anywhere from 20 percent to 35 percent of your qualifying expenses.
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