FAQs: Nannies and Household Employees
Is a nanny an employee?
Answer – YES! ABSOLUTELY! You are considered to be an employee when you work on a regular basis for a family, at their home and expect to earn more than $2,100 (2018) per year. The IRS and the state you work in consider you a household employee. There are only slight differences between being a household employee and an employee working in an office, retail store, or a restaurant, but basically both types of employees are treated the same way tax-wise.
What does being an employee actually mean?
Answer – Being an employee is good in many ways. First and foremost, you are protected under a number of laws in case you are ever unemployed, hurt, or when you are ready to retire. In the event you become involuntarily unemployed, you may be able to collect what is known as unemployment insurance until you find your next nanny job. The unemployment insurance will allow you to get by while you are looking for your new job. If you get hurt on the job, your medical bills and lost wages may be reimbursed by workers’ compensation, and if you are hurt off the job, then you may be protected by disability insurance. Under the present day laws, when you retire at the age of 67, you will collect Social Security benefits and be covered by Medicare medical insurance, thus providing you with some income when you retire.
Will I bring home less money each week because I will be paying taxes?
Answer – Yes, that’s right. You will receive less money in your paycheck to cover Social Security, Medicare taxes, federal and state withholding taxes, and possibly a small amount for unemployment and/or disability insurance. BUT, your employer also pays nanny taxes for your benefit and some of those taxes contribute to your Social Security fund, increasing the amount presently in your fund.
How much would I lose to taxes each week?
Answer – The Social Security and Medicare taxes are based on a percentage of your gross pay. The amount of Federal and State taxes depends on whether you are single or married and how many allowances you choose to claim. You may have 7.65% of your gross pay withheld for Social Security and Medicare taxes; and 5% to 25% of your gross pay for Federal and State income taxes if your state has an income tax.
Do I have to have income taxes withheld?
Answer – No, you are not required to have them withheld, but don’t confuse this with not having to owe any Federal and State income taxes. If you budget well or if you do not think you will owe a lot of income taxes at the end of the year, you may pay your own income taxes either at the end of the year or as an estimated payment to the IRS and/or your State. But remember, your household employer will give you a W2 form and a copy to the IRS indicating how much they have paid you and you must file that form with your personal tax return. More often than not, it’s a good idea to ask your employer to withhold the income taxes from your pay, so come April 15th you are not short a significant amount of income tax. By doing this you will then get a chance to get a refund when you file your own tax return.
Are there any benefits of being paid professionally?
Answer – Yes there are! If you have ever applied for a credit card, tried to buy a new car, or are planning to buy a house, proving you are working and paying taxes is very important. If you cannot prove you are legally earning income, the lender will not give you credit because you cannot prove how you will be able to pay them back.
What if the family I work for doesn't want to pay nanny taxes?
Answer – We understand you may encounter this and so does the agency you are working with. Ask the agency or GTM for help in explaining to the family that it is truly in their best interest to pay you properly and legally. Some of the following reasons may also help:
- It protects them in case you ever get hurt on the job
- They will be able to take advantage of their flexible-spending plan and deduct your salary as a qualifying expense
- Your employer has to report your wages and the taxes they withheld for you on their personal income tax return. The IRS figures to catch a lot of people who forget to tell them about their nannies
- Not paying you properly cheats you out of any credits to your Social Security account, impedes your ability to obtain credit, and will not protect you if you become unemployed
- Because it’s the law!
How does GTM help me and the family I work for?
Answer – GTM works with hundreds of families, nannies and agencies around the country helping them sort out taxes and comply with the nanny tax laws of the IRS and their state. This helps ensure a healthy working relationship between the family and nanny. GTM’s basic programs that do just this are listed in the household payroll section.
* The information contained within is designed to give the user general guidelines on the subject of household employment taxes. Tax laws can vary considerably from different taxpayers based on the circumstances and the state of residency. This information is not designed to serve as legal, accounting or tax advice. GTM encourages you to consult with a competent tax advisor concerning specific matters before making any decisions. GTM does not accept any responsibility for positions taken by taxpayers for any interpretations on the information found within.