The Nanny Tax: How to Pay Nannies, Babysitters, and Home Help
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
When it comes to small businesses, there are about a million tax and licensing laws designed to stifle productivity, creativity, and enthusiasm. But those are nothing compared to the traps ordinary people face in trying to comply with rules of the so-called nanny tax.
If someone works in your home and doesn’t have a full-blown business—with a business license and business cards, etc.—you are responsible for that person’s taxes. In 2010, the person who works in or around your home and earns $1,700 or more from you falls into this category.
Think about the folks you pay directly—babysitters, health-care workers, housekeepers, child-care providers, yard workers, drivers…You know who they are—the people who tend to work under the table, without reporting their income at all.
The IRS makes dealing with these taxes sound simple, as if all you have to do is blithely file a Schedule H, Household Employment Taxes, with your personal tax return each year.
Not even close!
Nanny Tax Paperwork Needed When You Hire
1. Form I-9, Employment Eligibility Verification. Photocopy the two forms of identification used, one of which must be a Social Security card.
2. Form W-4, Employee’s Withholding Allowance Certificate. Get one signed for each employee.
Keep time cards to prove the hours worked. You must issue paychecks, with appropriate withholding for Social Security and state disability. There are lots of online calculators to help you figure out how much to withhold for federal and state taxes.
Nanny Tax Paperwork Needed Quarterly
Each quarter, you must file payroll tax returns with your state and pay the unemployment and disability taxes.
Remember to pay estimated taxes to the IRS to cover your employee’s Social Security, Medicare, and unemployment taxes.
Nanny Tax Paperwork Needed Annually
After the end of the year, in January, you need to file the annual payroll tax returns with your state. You will give your employees a W-2 in January, and you will file the Form W-3 by the end of February (on paper) or March (electronically).
You will attach Schedule H to your personal tax return and pay any extra taxes due.
Exemptions from the Nanny Tax
The good news is that employees under the age of 18 are exempt from the payroll tax rules when they earn less than $1,000 per quarter. I call it the “teenybopper exemption.” It means if a high schooler babysits your kids, or the kid next door mows your grass, you may pay them up to $333 per month (about $75 per week) throughout the year without dealing with the payroll tax nightmare.
Your own children, under 21 years of age, and your spouse are exempt from the taxes. Your parents are exempt—or they might not be. Read IRS Publication 926, Household Employer’s Tax Guide, for more information. Or say to heck with it all and hire a payroll service to do it for you. You will find more nanny tax calculators, service providers, and tips at TaxMama.com.
Should you ever consider running for public office or get appointed to a judgeship, or any position of visibility, get your house in order—at all costs! Otherwise, pray your in-home help payments never get audited.
Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. Eva is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com.
Phantom Income from a Short Sale or Foreclosure? TaxMama Gives You Two Ways to Avoid the Tax
New Tax Increase for Wealthy Americans: Will You Pay More?
Tax Tips for Commercial Real Estate Owners
Hiring? Do Your New Hires Qualify You for Tax Credits?
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.