You’ve found the right nanny for your family and now you need to figure out how to pay your caregiver. A nanny is a professional with a very important role in your family so you’ll need and want to pay your nanny legally. You’re required to pay nanny taxes, which are employment taxes for household workers. If your nanny will earn $2,600 or more in 2023 you are obligated to pay the employer share and withhold your employee’s share of Social Security and Medicare taxes. And if your nanny earns $1,000 or more in a quarter, federal unemployment taxes are due. Depending on your state, you may also have state unemployment taxes to pay.
Here’s what you need to know when it comes to paying your nanny on the books:
What paperwork is required for paying a nanny legally?
Forms Required from Nanny
Before you start paying your nanny, your nanny needs to fill out Form I-9 to verify their identity and employment eligibility. You will need to keep their Form I-9 on file along with copies of proof of documentation your nanny submitted.
Have your nanny fill out a Form W-4 (Employee’s Withholding Allowance Certificate) which will indicate how much federal income tax will be withheld from your nanny’s pay. While it’s optional for household employers to withhold income taxes, it’s a smart idea to do this so your nanny won’t owe their entire tax obligation when they file their tax return.
Forms Required by Employer of Nanny
You’ll need an EIN (Federal Employer Identification Number). You can apply for one online.
Form W-10: Dependent Care Provider’s Identification and Certification
If you are claiming credit for childcare expenses on your personal tax return or participating in your employer’s dependent care flexible spending plan you will want to have this form completed by your nanny.
How to pay a nanny on the books
There are state-specific rules about how to pay a nanny. Find your specific state requirements. Nannies are also considered household employees and not independent contractors.
You’ll need to establish a payroll schedule for your nanny. First check with what your state mandates. Many states like New York and California require a nanny to be paid weekly.
Nannies should be paid an hourly rate. You need to determine this hourly rate and understand your state overtime rules because overtime pay may be required if your nanny goes above the standard weekly hours, which is typically 40 hours in a workweek. You’ll need to keep track of your nanny’s hours as well. This could be done by tracking start and end times online in a simple electronic file, on paper, or by using a payroll service with a timekeeping element.
The best way to pay your nanny is by direct deposit. With this method, you have a record of payment, and your nanny has the funds quickly. Cash is a bad idea because of the lack of record-keeping and the ability to withhold taxes. Paying your nanny by Venmo, PayPal or other online payment apps is problematic because it may result in a 1099-K being issued to your nanny when your nanny should receive a Form W-2 at the end of the year.
Paying nanny legally: nanny taxes
What Nanny Taxes You Owe as an Employer
You’ve established your nanny will make more than $2,600 in 2023 so you’ll need to address nanny taxes. Social Security and Medicare taxes are required to be paid by employer and employee. Your share is 7.65% of the nanny’s pay. Federal unemployment tax of 6% of wages up to $7,000 in wages is also required if your nanny earns more than $1,000 in a quarter. Check your state for how much you owe in state unemployment tax.
What Your Nanny Owes in Taxes
Your nanny also owes 7.65% of their wages for Social Security and Medicare taxes. You can choose to pay this on their behalf, or you will need to withhold the amount from their pay. The nanny’s W-4 will determine withholding rates for federal income taxes. State and local income taxes may also apply to your nanny’s tax obligations.
Additional requirements for legally paying a nanny
Workers’ Compensation Insurance
Some states require the employer of a nanny or other household employee to have workers’ compensation insurance. Check your state to see if it’s required.
Paid Family Leave and Paid Sick Leave for Nannies
Some states require employers to provide paid family leave and/or paid sick leave to household employees which may require a contribution from the employer and/or employee to the state fund.
Domestic Workers’ Bill of Rights
More and more states are adopting Domestic Workers’ Bills of Rights which covers household employees like nannies. You’ll need to check if your state has one and follow the requirements for paying your nanny.
Other rules for how to pay your nanny
There are many nuances to paying your nanny legally that are state specific. Some states have specific rules on when the last paycheck needs to be paid when your nanny resigns or is let go. There are state-specific laws about the amount of paid sick time a nanny is given.
Find state-specific laws around how to pay your nanny and nanny taxes.
Complexity of paying a nanny legally
Because of the many federal and state-specific requirements, it’s difficult to pay your nanny legally on your own. It requires dedication to keeping abreast of your state requirements, record keeping, and remitting taxes in a timely manner.
Many families find using a comprehensive payroll solution that specializes in nanny taxes is a convenient, compliant, and time-saving way to properly pay your nanny. Your taxes are handled by the payroll company, direct deposit can easily be established, and your nanny will have a W-2 at the end of the year. You’ll have a Schedule H to file with your taxes which is a required tax form for employers of household help.
GTM can give you peace of mind, handle paying your nanny, and remitting taxes while also insuring you are following all the federal and state-specific rules around household employment. Plus, if workers’ compensation is required in your state we can help with that as well.
Additional Nanny Tax Resources
To figure out your nanny tax obligations use GTM’s household tax calculator.
For more information on how to pay nanny taxes visit our Nanny Tax Guide.
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