A Quick Guide for Paying Your Nanny Taxes
Use our guide to save you time and energy at tax time
Should you pay nanny taxes? The right ethical answer is yes, you should. If you're unsure where to start, follow our guide to make sure you cover everything.
The IRS requires anyone with household help, such as a nanny, babysitter, or housekeeper, to pay taxes. You'll need to pay Social Security, Medicare, FUTA (Federal Unemployment Tax Act) and federal and state income tax if their annual pay crosses over a certain threshold, which as of 2017 was $2,000.
For example, if you pay an adult babysitter $35 every Saturday night, you must pay nanny taxes. Not only is it illegal to skip the nanny tax, it's unfair to the person who's caring for your child. You're potentially costing her or him future Social Security and Medicare benefits.
You'll need the following information:
- Household Employers Tax Guide (IRS Publication 926)
- The official IRS Forms W2 and W3 (call 800-TAX-FORM to order them)
- A record of how much you paid your nanny last year.
- Your nanny's Social Security number and address
- Your household Employer Identification Number (EIN)
- ... and last by not least a calculator, pen, and paper.
The following instructions will only cover paying Social Security and Medicare taxes for your nanny. Read the Household Employers Tax Guide (referenced above) to see if you will owe federal unemployment tax (FUTA). You will need to check with your state to see if you owe state employment taxes.
Before You Hire, Decide How You'll Manage Nanny Taxes
Here are some decisions you must make when you hire your nanny. First, be sure they can legally work in the United States by examining their documentation and filling out a Form I-9, "Instructions for Employment Eligibility Verification"
Once you have found your awesome nanny you can decide together if you, the employer, will withhold federal income tax or not. You are not required to do so, but if you decide to withhold and then have a change of heart be sure to put this in writing. Federal tax withholding is not covered by this article so be sure to do your homework on this.
Investigate if you will owe state employment taxes. Each state is different and because this is such a big topic it won't be covered in this article. But to steer you in the right direction the relevant state agencies are listed in an appendix of the Household Employers Tax Guide.
For Social Security and Medicare, you can either pay it all yourself or deduct half of it from their pay. Medicare and Social Security taxes amount to 15.3 percent of her pay. Half of that, 7.56 percent, is the employee's share, which you could withhold from each paycheck or pay yourself. You, the employer, send both halves of the tax to the federal government. When hiring your nanny, tell them how you plan to manage this.
Things To Do Ahead of Time to Make Filing Easier
Once you hire your nanny, keep records of cash and check payments you make to them in a spreadsheet like Google Sheets or Microsoft Exel. Then at the end of the calendar year, record the total cost for you to submit in your taxes.
You will need an EIN number in order to file for your nanny taxes. The first year you have your nanny be sure to call the IRS before February to be assigned an employer identification number. You can call 800-829-4933, apply online, by fax or via mail.
As for coming up with the cash to pay your nanny taxes you have a few options. You could ask your own employer (or your spouse's employer) to withhold more from your wages in order to cover household employment taxes. Or, you can make estimated tax payments to the IRS each quarter. Another option is to pay nanny taxes on April 15 with your income tax, but if the amount is large enough you might be subject to penalties.
The Three Forms You Need to Fill Out
January 31st is the due date for the two Social Security forms you must fill out, which are Form W-2 and Form W-3. You can opt to submit these forms online for quick and easy processing. If you need help filling out these forms there are examples at the end of the Household Employers Tax Guide.
The third form is your Schedule H form which can be submitted by tax day. The Schedule H form is called the "Household Employment Taxes" which helps you determine how much you'll pay for your nanny taxes which are Social Security, Medicare, Withheld Income, and Federal Unemployment (FUTA) Taxes.
Are you worried about your math or have questions? The IRS created a set of instructions that covers these three forms. They include examples of the forms and things you should know about Household Employer Taxes.
Now when tax day comes you'll feel more prepared. Your nanny taxes covers five different types of taxes and by following this guide and doing a bit of homework you'll be ready to file with confidence.
Updated by Elizabeth McGrory