Nanny Payroll: A Quick Guide for HouseHold Employers
If you’ve hired or are planning to hire a nanny to help your family with childcare, you’ll need to get to know your legal responsibilities to avoid trouble with the IRS. When you hire a full-time nanny, you’re considered a household employer. If you pay out more than $2,200 in one year to a single employee, you’ll have to pay payroll taxes and file year-end tax forms to maintain compliance.
If you’d rather not handle all of the ins and out of processing nanny payroll yourself, Cirrus Payroll can help. We calculate and manage your payroll taxes, ensuring they’re paid on time. We also provide year-end tax forms electronically so you and your employee(s) can easily access important documents at tax time. Sign up for a free quote.
Nanny Employee vs Nanny Contractor
Some families wonder why they’re classified as employers when they hire nannies. Can a nanny be a contractor instead of an employee?
The answer is: Usually no. Due to the nature of the work nannies provide, they’re usually classified as employees, which explains why you’re treated as an employer. To be a contractor, they cannot work for you full-time, meaning they must have additional time in their schedule to have other clients, and you cannot control the way they perform their job, only the end result.
Nanny Payroll Taxes
Although you are responsible for withholding payroll taxes from your nanny’s paycheck and paying a portion from your own funds, you don’t have to pay as much as an employer of a traditional business. You’ll need to manage Social Security and Medicare taxes (FICA) and unemployment taxes.
Social Security & Medicare Taxes (FICA)
You’ll need to withhold 6.2% of your nanny’s paycheck for Social Security and 1.45% for Medicare. In addition, you’ll have to pay the same amount from your funds to complete the tax payment.
FICA taxes provide money for government-managed retirement and healthcare coverage employees can access when they’re older. Trying to avoid paying into this fund would place your nanny at risk financially as they wouldn’t be eligible for future benefits. Plus, paying these taxes is required by law and the IRS takes collection of these taxes very seriously.
Unemployment Taxes on Nanny Payroll
You will also very likely need to pay unemployment taxes. Unemployment taxes provide money the government would use to temporarily pay your nanny in the event that they become partially or totally unemployed.
There are two types of unemployment taxes: federal unemployment taxes (FUTA) and state unemployment taxes (SUTA). Federal unemployment taxes are 6% on the first $7,000 of the employee’s earnings. State unemployment tax rules and rates vary by state. For example, in Oklahoma, 2021 unemployment tax rates range from .3% to 7.5%. You must pay these taxes out of your own bank account and aren’t allowed to withhold money from your nanny’s paycheck to cover any related expenses.
Calculating and withholding payroll taxes regularly can make hiring a nanny a bit more stressful. Cirrus Payroll has experts who will manage this process for you. We are familiar with all tax deadlines and have existing processes in place to ensure you don’t face any late fees or penalties. Request a free quote.
Income Taxes for Nanny Payroll
You’re not responsible for paying nor withholding money from their paychecks to cover employee income taxes. However, if you’d like to withhold the money for them as an added benefit of working for you and they would like you to do so, you can.
Nanny Payroll Tax Filing
In addition to paying and/or withholding taxes on your nanny’s earnings, you’ll also need to prepare and file Schedule H at the end of the year with your personal tax return Form 1040. You should make estimated deposits unless you want to pay the entire year’s worth of taxes at one time.
You’ll also need to send your nannies a completed W2 Form by January 31 of the year following the year that you’re reporting (i.e., January 31, 2022 for work performed in 2021). Be sure to send a copy to the IRS as well in addition to a W3 Form, which is a summary of your W2 Forms, if you have multiple household employees.
**Please keep in mind that most states require regular payroll tax filings for unemployment and state withholdings, so you’ll need to do a little research to ensure you don’t miss key deadlines.
Key Takeaways About Nanny Payroll
- If you hire a full-time nanny, the IRS classifies you as a household employer.
- When you pay a nanny more than $2,200 per year, you’re responsible for withholding and paying payroll taxes.
- You’ll need to manage Social Security, Medicare, and Unemployment taxes for each household employee you hire; income taxes are the employee’s responsibility.
- You’ll need to prepare a year-end Schedule H and W2.
If you choose to work with Cirrus Payroll, our experts will handle all IRS tax filings and ensure your employees receive access to their tax documents in a timely manner. We stay abreast of both federal and state regulations, so you don’t have to spend time researching rules that are subject to annual changes. Sign up for a free quote today.