Sponsored by The Nanny Tax Company
You've hired a great nanny and you've agreed on a nanny contract (either with a nanny share family or on your own). You're done now, right?
Nope. You still need to tackle one more important thing: nanny taxes.
Nanny taxes are employment taxes (social security and Medicare, state and federal income taxes, and state and federal unemployment taxes) owed to the government when you have someone working in your home. Though the term “nanny” is in the name, it’s important to note that nanny taxes are NOT just for nannies! Anytime you hire someone to work in your home, whether a babysitter, home health aide, housekeeper, etc., the government views you as an employer, making you responsible for employment taxes. Though there is a misconception that these employees can be categorized as “independent contractors,” misclassifying a household employee as an independent contractor can lead to a charge of tax evasion.
Wondering why household help can’t be classified as an independent contractor? Because per the IRS, a person is an employee when you tell them what they will do and how they will do it, as opposed to an independent contractor that you tell only what results you’re looking for. For example, you would consider a landscaper an independent contractor. You tell the landscaper what you want done — they’re responsible for ensuring that it gets done and they’re free to sell their services to everyone in town. A nanny, on the other hand, works in your home at the hours you set, and cannot sell their services to others while working for you.
While many families think they can “fly under the radar” of nanny taxes, keep in mind there are ways the government might catch on. Although you may not get audited by the IRS, if you fire your employee they could try to claim unemployment benefits. Or, your employee might file for social security benefits and there is no record of her employment with you.
Plus, paying your nanny legally gives you the added benefit of knowing your employee is receiving fair and legal wages, has the employment paper trail that will allow him or her to purchase a car or home, and will be able to collect social security when they are older. Everyone benefits from paying their nanny taxes: families and employees alike!
While the complex requirements of nanny taxes can sound a little confusing (and scary!), there is help available. Start by reading IRS Publication 926 to learn about the federal component of nanny taxes. Then check out the Illinois Department of Employment Security (IDES) and the Illinois Department of Revenue websites for information on reporting household employer taxes. Lastly, check the Social Security Administration website regarding filing the employee’s W-2 forms each year.
The Nanny Tax Company is a family and woman-owned company with over 25 years of experience handling nanny taxes. We know the ins and outs of nanny taxes and are readily available to answer your questions via phone and email. The Nanny Tax Company can be reached at (847) 696-7260, or https://www.nannytaxprep.com.
