How Do Taxes Work When You Hire a Nanny?
The difference lies in the way you pay your nanny and how he or she claims the income on his or her income taxes. If your nanny is a W-2 employee, you must withhold taxes from each paycheck, including Social Security and Medicare taxes. If your nanny and other household workers are independent contractors, then the person doing the work is responsible for paying their employment taxes on their own.
The laws determining whether someone who works for you is an employee or a contractor are complex. You should always consult an accountant or tax attorney if you are unsure of whether you should be withholding Social Security, Medicare, or other employment taxes — or if you should be paying nanny taxes.
Forms for Nannies to Fill Out When Filing Taxes
As a nanny, you also need toknow the laws when filling out taxes. The families that hire them are responsible for paying payroll taxes and unemployment insurance taxes, but nannies who are hired as employees must pay income tax withholding, Social Security, Medicare, state income, and other taxes. Those who must file federal income tax usually have to file a quarterly tax return with a quarter of the amount they estimate they will owe at the end of the year.
A few important facts:
As an employee
- , you will receive a W-2, and you would file federal and state taxes as you normally would when working for any employer that gives you a W-2.
- If you are an independent contractor, even for cash wages, you must claim your child care income on your tax returns and pay taxes throughout the year.
Some of the tax forms you might need to fill out other than the 1040 include a Schedule C. The other forms you fill out depending on how you structure your business. Limited liability companies (LLCs), corporations, partnerships, S-corps, and sole proprietorships each have different tax requirements, so it’s important to work with a qualified tax professional to ensure you are filling in the right forms — and doing so correctly.