If you’re considering employing a summer nanny to look after your kids while they are off from school, you should be aware that nanny tax, payroll, and insurance requirements may apply even if you’re only hiring for the season.
Here’s what you need to know about paying taxes on a summer nanny:
Your summer nanny is an employee
The IRS has consistently ruled that a nanny is an employee and not an independent contractor.
This distinction is important. With an employee, the worker and employer each pay Social Security and Medicare taxes. An independent contractor pays both their share and the employer portion of these taxes.
Why is a nanny considered an employee?
She is a worker who:
- works under the direction and control of her employer
- has her schedule set by her employer
- uses the employer’s tools
Essentially, you are telling your nanny how to care for your children and when to show up to your to home to work. When she is working, she is using your tools, such as plates and utensils to serve lunch.
An independent contractor is told what is needed to be done and possibly when it needs to be done by. However, they determine how the work will get done, when they will perform the work and will use their own tools to do the work.
Your summer nanny makes $2,100
If your summer nanny passes the $2,100 cash wage threshold, then Social Security and Medicare (FICA) taxes need to be paid by both you and your employee. You each have a responsibility of 7.65 percent of cash wages for FICA for a total of 15.3 percent.
Your employee’s obligation can be handled through a paycheck withholding and you can remit both your and your employee’s taxes quarterly using Form 1040-ES.
A summer nanny can very easily reach this threshold. Let’s say she makes $10/hour for 25 hours of work per week for 10 weeks. That’s $2,500 in cash wages triggering the FICA withholding requirement.
There are some exceptions. Do not count wages you pay to your spouse, child under the age of 21, parent or any employee who was under the age of 18 at any time during the year.
You and your summer nanny may also agree to withhold income taxes from their pay. It’s not required that you withhold but it may be preferred so that your nanny won’t owe all of her tax obligations come tax time. You can remit income taxes quarterly.
Your summer nanny makes $1,000 in a calendar quarter
Federal unemployment taxes are owed if your summer nanny makes $1,000 in any calendar quarter. We’ve already shown how easily this threshold can be reached. This tax is an employer-only tax (do not withhold from your employee’s pay) and is six percent on the first $7,000 in cash wages. You may also owe state unemployment taxes.
Again, there are some exceptions. Do not count wages you pay to your spouse, child under the age of 21 or parent.
You will need to pay unemployment taxes for employees under the age of 18 if they make $1,000 in a calendar quarter.
You may need workers’ compensation
Workers’ compensation may be required for household employers in your state. It may only take your employee to reach the necessary hours once in order for workers’ compensation coverage to apply. For example, in New York, if your summer nanny works 40 hours in a week, even for just one week, you need workers’ compensation coverage for the entire time she works for you.
Follow minimum wage & overtime rules
Since your summer nanny is an employee, she is protected under the Fair Labor Standards Act. This means she must be paid at least the federal minimum wage or your state or local minimum wage, whichever is highest. Overtime also applies. Hours worked over 40 in a week need to be paid at no less than time and a half. There are some exceptions for live-in employees.
File year-end tax forms
At the end of the year, you will need to provide your nanny Form W-2 (Wage and Tax Statement) while filing Copy A of this form and Form W-3 (Transmittal of Wage and Tax Statements) with the Social Security Administration. You’ll also file Schedule H (Household Employment Taxes) with your personal tax return.
Get the Resources You Need
Download The Complete Guide to Household Payroll, which will walk you step-by-step through paying your summer nanny the right way and avoiding the risks, fines, and penalties of non-compliance with tax, wage, and labor laws.
If you’re hiring for a long-term placement, call GTM at (800) 929-9213 for a free, no-obligation consultation with a household employment expert.