Who Falls Under the “Nanny Tax” Category?

When hiring a caregiver, you might be forgetting about one of the most important things related to the hiring process. Depending on how much you pay your nanny a year, your household employee may need to be taxed and have payroll responsibilities.Caregiver

What Is A “Nanny Tax”?

A nanny tax involves a mixture of taxes withheld from your domestic employee and taxes paid as the employer. This includes withholding Social Security, federal, and state income taxes during each pay period. State income taxes may not apply as such taxes are not collected in all states.

Does Your Family Qualify?

If any worker within your house makes more than $2,000 a year, the Internal Revenue Service (IRS) claims that you must tax your employee. In order to pay nanny taxes, you’ll need both a federal and state tax identification number. You will also need to correctly determine your employee’s gross pay, taxes withheld, and have your employee fill out a W-2 form.

What Do I Need As A Caregiver?

As a caregiver you will need to provide your employer with an authentic Social Security number, a completed federal W-4 form, a corresponding state income tax withholding form, and a completed I-9 with proper identification. Talking to your employer about nanny taxes can be difficult, but it is an important conversation to have.

Conclusion

Paying your nanny legally through the “nanny tax” brings benefits such as social security income, a verifiable employment history, and reduced taxes through the Child Care Tax Credit. Paying a nanny as an employee rather than an independent contractor will be beneficial to both your nanny and your household.

 

Image credit: Michael Havens

About Shoreline CPA

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

  • Huddleston Tax CPAs / Huddleston Tax CPAs – Shoreline, WA
    Certified Public Accountants Focused on Small Business
    18208 66th Avenue NE, Suite 102 Kenmore, WA 98028
    425-483-6600

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, offer in compromise debt relief, and business valuation services for small business.

    We serve: Federal Way, Des Moines, Kent, Auburn, and communities throughout WA and beyond. Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.