The ABCs of Nanny Taxes

The ABCs of Nanny Taxes?

It’s tax time! Have you included your nanny taxes?! It does not have to be a posh gig but when you pay people to help in your home you may be subject to some special rules. We have a great guest post today from Poppins Payroll explaining the ins and outs of nanny taxes.

Here’s the scoop on nanny taxes: if you pay a household employee such as a nanny, babysitter, elder caregiver or house manager more than $2,100 a year, the IRS says you are a household employer. 

As a household employer, you must comply with certain tax obligations, commonly referred to as the nanny taxes or household payroll taxes. It’s complicated, but generally, after you have registered as an employer with all the appropriate agencies and reported your new hires, you must:

  • Payroll – At every pay period, withhold certain state and federal taxes such as income tax, Social Security, and Medicare, and you must also calculate employer contributions such as unemployment taxes related to those wages.
  • Quarterly – submit the proper paperwork and payments to the correct agencies. The agencies will typically include the IRS, the State and any other local agencies that require remittances, including certain municipalities.
  • Year-End – provide your employee with his or her W-2 form, submit a copy of the W-2 and W-3 to the Social Security Administration, submit state reconciliations if required and prepare a Schedule H to file with your individual tax returns.
Photo by Liliane Limpens

How to Report

To report your nanny’s wages and pay federal unemployment taxes, you’ll need certain tax forms (list includes federal forms only):

  • Form I-9: Have your employee complete this form when hired and provide the required proof of ID.
  • Form W-4: Have your employee complete this form which dictates how income tax is withheld.
  • Form 1040-ES: On a quarterly basis send this form to the IRS along with payment to report taxes from previous quarter. Don’t forget that federal quarter dates do not line up with calendar quarters!
  • Form W-2: Fill out Form W-2 if you pay Social Security and Medicare wages of $1,000 or more, and give Copies B, C and 2 to your nanny. Copy A (along with Form W-3) goes to the Social Security Administration.
  • Schedule H: If you pay your nanny cash wages of $1,000 or more in a calendar quarter or 2,100 in a calendar year file Schedule H.

You can find all the information about your federal obligations in the IRS’s Publication 926 Household Employer’s Tax Guide.  The IRS estimates that it would take you 60 hours a year to comply with the federal nanny tax regulations.   That doesn’t include what you have to do to pay state and local payroll taxes. 

When to Pay

Under Texas law, a household employer becomes liable to pay state unemployment taxes on their nanny if the employer pays gross wages of $1,000 or more in a calendar quarter.  You can find more information on the Texas requirements here: TWC Domestic Employment Guide.

If it all seems like too much, you can hire a service like Poppins Payroll to run your payroll and handle the nanny tax obligations for you. 

However you decide to handle those pesky nanny taxes, it’s always a good idea to follow the law.  It gives your nanny important benefits like Social Security, Medicare and Unemployment Insurance.  It also allows him or her to build their credit.  Finally, you never know when you might get nominated for the Supreme Court.  And, we all know how that ends if you haven’t paid your nanny taxes!

Happy April 15th!

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