Families and nannies alike often have questions about the nanny tax, and their respective responsibilities. The following FAQ is merely intended as an introduction. The INA recommends that you discuss your particular situation with a qualified, reputable professional. Several well known household payroll services are INA members, and you may also consider using your accountant or attorney as a resource. The IRS has ruled definitively that nannies and most household workers are employees of the family for which they work.
The difference between employees and independent contractors hinges on the amount of control one has over the worker, and a family directly hiring a nanny to work in their home absolutely has the right and responsibility to exercise control over how the nanny performs her work.
If the family controls work hours, work place, responsibilities, work tools to name just a few , the worker is their employee. An independent contractor usually provides her own tools, her own place of work, sets her own hours and offers services to the general public. An independent contractor also has greater tax responsibility than an employee because they have to pay both the employee and employer taxes.
The IRS views household workers to be employees — with very few exceptions. The parents also may be eligible to use their dependent care Flexible Spending Account FSA to pay their child care expenses. Any pre-tax FSA benefits are subtracted from expenses used for the child care credit. A tax professional can help parents maximize their child care tax benefits. They will also need to issue a W-2 to their nanny by the end of January and submit a copy, along with Form W-3, to the Social Security Administration by the end of January.
The questions begin again when it comes to state taxes, as each state has different requirements and processes. Parents can check with their state department of revenue for information or consult a tax professional for assistance.
New parents have a lot to look forward to. But by learning about nanny taxes and planning for their new responsibilities — and getting help when they need it — parents will be able to take on both of their new roles with confidence. Before that, she worked as a communicator for a senior member of the United States House of Representatives. This link is to make the transition more convenient for you. You should know that we do not endorse or guarantee any products or services you may view on other sites.
If your employer is overwhelmed by the process, let them know that Care. If the family refuses to do their part, there are still things you can do. Run a sample payroll scenario to see how taxes work. Learn about the benefits you receive by being paid on the books. Read more about how taxes work for a temporary caregiving job.
Resource Center What can we help you find? Why caregivers need a W-2 to file taxes — not a Finally, you may be required to withhold and deposit state income tax on wages paid to a household employee, and you may have to pay for state unemployment insurance too.
Here in FAQ format is what you need to know about the federal tax issues for household employees. Good question. The Nanny Tax issues covered here only apply if a household worker is actually your employee — as opposed to an independent contractor — under the federal tax rules. Household work only includes performing services in or around your private home. However, an individual who provides these types of services may be a garden-variety employee as opposed to a household employee.
The basic tax rules for garden-variety employees are similar to those for household employees, but there are different compliance requirements. Consult a tax pro if you have questions. According to IRS Publication , a person who does household work for you is your employee if you control not only what work is done but also how the work is done.
So, if a worker regularly comes to your home on a schedule dictated by you and is supervised by you, the worker is probably an employee. Yard care workers, pool service guys, maids and the like who provide services to the general public and just show up at your place periodically to go about their business are not your employees. If you cross that threshold, the Social Security tax rate is You withhold 6.
The Medicare tax rate is 2.
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