FAQs on Legal Pay: Nannies and Household Employees
Is a nanny an employee?
Answer – Yes, 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 $2,400 in 2022 (or earned at least $2,300 in 2021). 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 beneficial to you in many ways. First and foremost, you are protected by several laws in case you are ever unemployed, injured on the job, 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, which provides a partial replacement of your wages until you find your next 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 current law, when you retire at the age of 67, you can collect Social Security benefits and be covered by Medicare medical insurance, providing you with some income and health care coverage when you are no longer working.
Will I bring home less money each week because I will be paying taxes?
Answer – Yes, that’s right. You will receive a little less money in your paycheck to cover Social Security, Medicare taxes, federal and state (if applicable) income taxes, and possibly a small amount for disability insurance and/or paid family and medical leave programs. Your employer also pays taxes for your benefit. Those payments cover unemployment benefits if you lose your job through no fault of your own as well as contributions to your Social Security and Medicare accounts.
How much would I pay in taxes each week?
Answer – Social Security (6.2 percent) and Medicare (1.45 percent) taxes total 7.65 percent of your gross pay. The amount of federal and state (if applicable) income taxes depends on your Form W-4, which calculates how much your employer will withhold from your pay. Use our nanny pay calculator to determine your take-home pay.
Do I need to have income taxes withheld?
Answer – No, your employer is not required to withhold income taxes. Just don’t confuse this with not having to owe federal and state income taxes. If you do not have income taxes withheld, be sure to budget for that expense as your entire income tax obligation will be due when you file your personal tax return. At the end of the year, your household employer will give you a Form W-2, which is also provided to the IRS, that indicates your total gross wages. It is a good idea to ask your employer to withhold income taxes each pay period so you will not owe your entire tax responsibility at tax time.
Are there any benefits of being paid professionally?
Answer – Yes there are! If you apply for a credit card or loan, want to purchase a car, or plan to buy a house, proving you have a work history and regular income is important. If you cannot show that you are legally employed, the lender may deny your credit or loan request because they may no feel you will be able to pay them back.
What if the family I work for doesn't want to pay nanny taxes?
Answer – You may encounter a family who wants to pay you “under the table” or does not understand the importance of legal pay. If you are working with a nanny agency, they can help educate the family or ask us 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 for paying legally may also help:
- It protects the family in case you ever get hurt on the job.
- They will be able to take advantage of a Dependent Care Flexible Spending Account (FSA) and/or the Child and Dependent Care Tax Credit by using your wages as a qualifying expense.
- If you file for unemployment benefits, they will be caught for evading their tax responsibilities and face fines, penalties, and payment of back taxes.
- Not paying you properly cheats you out of funds to your Social Security account; prevents you from obtaining a loan, mortgage, or 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 Payroll Services works with thousands of families and nannies around the country to help them comply with federal and state tax, wage, and labor laws. This helps ensure a healthy working and professional relationship between the family and their nanny.
* 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 Payroll Services 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 of the information found within.