Tax Obligations for Nannies and Other Household Workers
You may be like many nannies and other household employees who often have questions about your tax obligations. It is worth understanding your (and your employer’s) responsibilities at the beginning of employment even if it’s just a temporary placement.
Here are some key questions and answers about tax obligations for nannies and other household employees.
Am I an employee or an independent contractor?
Nannies and other household workers are considered to be employees and not independent contractors. Employees take instruction from their employers; have their schedules set by their employers; and use their employer’s supplies, tools, and equipment. Independent contractors – perhaps a lawn care service – work under their own conditions, set their own schedule, and use their own supplies. The IRS and state tax authorities treat nannies and other household employees the same way as someone who works in an office, retail store, or restaurant.
Will I have taxes taken out of my paychecks?
If you earn more than $2,400 in 2022 (or made $2,300 in 2021) from one family during the year, your employer must withhold Social Security and Medicare taxes from your pay. Social Security is withheld at 6.2 percent and Medicare at 1.45 percent of your gross wages. The amount of federal and state (if applicable) income tax withheld from your paycheck depends on how you complete your Form W-4. Your employer will pay the same in Social Security and Medicare taxes as well as federal and state unemployment insurance.
Do I have to pay any taxes?
If you earn less than $2,400 in 2022 (or $2,300 in 2021) from any family, then your employer is not obligated to withhold taxes. But you will still have to file an annual income tax return (Form 1040) and report any wages earned during the year, even if it is less than $2,400 (or $2,300 in 2021). Keep an accurate record of your earnings. This will help you pay both federal and state income taxes for the calendar year when you file your tax returns.
Use our nanny tax calculator to determine how much in taxes will be withheld from your paycheck.
What if the family I work for doesn’t want to pay taxes?
If your employer will be paying you more than $2,400 in 2022 (or paid you $2,300 in 2021), they are required by law to withhold taxes. We understand you may encounter a family that wants to pay you “under the table.” Explain to the family that it is in their best interest (and yours) to pay you legally. Some of the following reasons may also help:
- Your family can take advantage of their employer’s flexible-spending plan (commonly called a Dependent Care FSA) and use your wages 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 may investigate, fine, or penalize families that don’t follow the law.
- Not paying you properly denies funds to your Social Security account, impedes your ability to obtain credit, and leaves you unprotected if you become unemployed.
- You and your employer have a happier relationship. You have legal, recorded employment history and are eligible for Social Security, Medicare, and unemployment assistance. Your employer reduces the risk of an IRS audit or hefty fines for being non-compliant.
We are here to help with your questions about nanny tax obligations. Feel free to call us at (800) 929-9213 or email [email protected] with your questions about nanny tax responsibilities, legal obligations, and how to become compliant with tax, wage, and labor laws.
Also, download The Complete Guide to Household Payroll. It will help you every step of the way and explain everything you need to do. There’s even a handy checklist and payroll calendar at the end of the guide to use as references.