Nanny Tax: What You Need to Know When You Hire a Household Employee

A 60-second read by the Baron Team: 

  • Nanny taxes are taxes paid to the government from a person working in and/or around your home. These jobs can include nanny, housekeeper, gardener, chef, personal assistant or caregiver.
  • The worker is considered a household employee if the employer controls what work is done and how it is done and can be full time or part time work.
  • If you pay someone that works in your home $2,100 or more a year or $1,000 in a quarter they are considered a household employee.
  • The employer must obtain the employee’s name and social security number.
  • The employer must withhold a certain amount of compensation from a household employee for FICA and Medicare.
  • As well as withholding a certain amount of money from your household employee, you must also pay your share of FICA employer taxes and federal and state unemployment taxes.
  • The employee, as well as the employer, can benefit from filing these taxes. The employee can prove she/he was working for a set amount of time and qualify for certain government benefits, such as social security and unemployment.

  • Forms Required to file:
    1. Form SS-4 to obtain your federal Employer Identification Number, which is needed for the other forms.
    2. Form I-9 is needed to be filled out by your employee to verify she/he is eligible to work in the United States.
    3. W-4 Forms are used to determine what taxes are needed to be deducted from the household employee’s wages and sent to the IRS.
    4. Schedule H Form is part of your personal return with Form 1040 & an accountant can help determine the amount the employer is taxed for FICA and unemployment.

  • Insurance requirements:
    1. You must register for unemployment insurance in your residing state.
    2. You also need to have workers compensation insurance, which is very important.
      • If you reside in NY, you will also need to purchase a separate disability policy.

  • State taxes are generally paid quarterly while Federal taxes are paid annually.
  • If you refuse to file the proper tax documents you may be subjected to an audit from the IRS leading to tax evasion. Trying to classify your household employee as an “independent contractor” is a red flag to the IRS and should be avoided.

For more information on hiring household employees visit:  https://www.irs.gov/businesses/small-businesses-self-employed/hiring-household-employees

For more information on what forms are needed for hiring employees visit: https://www.irs.gov/businesses/small-businesses-self-employed/hiring-employees

If you have more specific questions on this matter, we recommend speaking with a tax professional.

If you have any other questions, please reach out to your Baron Financial Group team.