Household Employer Responsibilities: Nanny Taxes and Payroll
Here are answers to some basic questions about household employer responsibilities for nanny taxes and payroll as well as other legal obligations when employing a nanny or other worker in your home.* Please note: there are a few exceptions in certain states.
If you have any further questions about nanny taxes, payroll, labor laws, contact GTM’s expert payroll and tax consultants at (800) 929-9213, [email protected], or through Live Chat.
How to Comply with Federal and State Tax, Wage, and Labor Laws when Employing a Nanny
Steps to Take Before You Hire a Nanny
If you are going to hire a nanny, it is important to understand your household employer tax and payroll responsibilities. You must file all applicable nanny tax forms and pay Social Security, Medicare, and federal and state unemployment insurance. These obligations apply to all full-time and part-time nannies that you employ and expect to pay more than $2,600 in 2023 (or paid more than $2,400 in 2022).
Some families pay their childcare providers in cash or “off the books.” Although this gives your nanny a slightly larger paycheck and saves you from the extra paperwork, it is illegal and can make you liable for unpaid nanny taxes, interest, and penalties. This also cheats your nanny from contributing to a Social Security account and inhibits the nanny from establishing credit or legitimate employment history. Once you hire your nanny, you will begin the process of filing forms and paying nanny taxes.
Get an Employer Identification Number (EIN)
In order to report household employment taxes and issue employee tax statements, you must obtain an employer identification number (EIN) from the IRS. Your state will require you to obtain a separate number for state unemployment insurance reporting and possibly income tax withholding reporting as well.
Pay Social Security & Medicare Taxes
Your household employees’ wages fall under the Federal Insurance Contribution Act (FICA), so a portion of the wages you pay needs to be withheld and paid as Social Security and Medicare taxes. Both you and your employee are required to pay a percentage (7.65%) of their gross wages. You may pay the entire amount yourself and list the employee’s share as additional taxable gross income. The IRS, realizing that many employers will not want a large tax liability at the end of the year, strongly recommends quarterly estimated payments.
Pay Federal & State Income Taxes
Withholding income taxes is not required – but recommended – for household employers. By withholding income taxes throughout the year, your employee will not be stuck paying their entire obligation when they file their personal tax return. If you agree to withhold these taxes from your employee’s pay, provide your worker with Form W-4 at the start of employment. This will determine how much to withhold each pay period. The IRS encourages household employers to remit federal nanny taxes (including income, FICA, and unemployment taxes) four times a year using Form 1040-ES, or annually with the Schedule H. Generally, all states require state income taxes to be paid quarterly with your state tax agency. All wages and tax withholdings must be reported on your employees’ Form W-2 at the end of the year. The W-2 must be given to your employee and the Social Security Administration by January 31.
Pay Federal & State Unemployment Taxes
Household employers are required to pay federal and state unemployment taxes. You will pay these taxes on a preset amount of your employee’s annual wages. The IRS and some states require you to treat non-cash benefits, like meals and lodging, as wages subject to this nanny tax.
Check State Requirements for Workers' Compensation & Disability
Some states require that you carry a workers compensation and/or disability policy if you employ someone to work in your home. Contact GTM Payroll Services at (800) 929-9213 ext 7213 about obtaining workers’ compensation coverage.
Use Dependent Care Assistance & Tax Credits
You can pay your household employee with pre-tax funds through a Dependent Care FSA, which your employer would offer as a benefit. This plan allows you to contribute up to $5,000 of your wages to the account reducing the amount of your pay that is subject to federal and state income taxes. Contact your human resources department for details. You can also claim your nanny’s wages as part of the Child and Dependent Care Tax Credit on your federal income tax return.
*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 Payroll Services does not accept any responsibility for positions taken by taxpayers for any interpretations of the information found within.