Nanny Taxes 101: How to File Taxes as a Nanny

Published By: Chad Silver
On: December 23, 2020
Last Updated: May 8, 2023

See More in: Business Tax, Tax Education

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Hiring a nanny for your children comes with having to pay a nanny tax, but many believe that having individualized care provided by a person they trust outweighs household employment taxes. Instead of having your children in a daycare where they might not receive individualized attention, a person you vet and hire as a household employee takes care of them for you. A nanny’s time is divided amongst your children only. He or she spends more time with them and can help with teaching them more life skills, plus provide help with schoolwork — especially if you are a working single parent or if both parents work. The extra money you spend on your personal income tax return is a small sacrifice you pay for ensuring your children have more one-on-one time with someone during their formative years. Here’s everything you need to know about hiring a nanny, including how nanny taxes work.

How Do Taxes Work When You Hire a Nanny?

For tax purposes, a nanny can be an employee who receives a W-2 or someone who is self-employed. A few things to keep in mind if you are the nanny’s employer:

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.

Common Problems When Filing Nanny Taxes

Nannies who work as independent contractors often experience some issues when filing taxes. First, you have more forms to fill out. You also have to know what you can claim on your taxes. Retaining an accountant helps you keep your taxes straight. Some pitfalls to look out for include:

Nannies Must File Quarterly Taxes

Nannies who are self-employed must file estimated quarterly taxes, which can create some headaches. If you claim too much, you don’t have access to your money. If you don’t claim enough, you could face penalties.

Ever-Shifting Regulations

Tax laws constantly change. You need to be aware of any changes in the tax law when putting your quarterly taxes together and working on your year-end return, or you could pay too much or too little.

Misclassifications are Common

Your employer could accidentally misclassify you, but that mistake could create ripple effects. If the employer classifies you as an independent contractor and you are an employee, for example, it will cost you extra taxes.

Personal Classification Issues

Those who wish to be self-employed usually cannot be classified as such because of the nature of the job, and those who are self-employed could run into issues with the IRS since the organization considers nannies to be W-2 employees. If you have other clients and work on an on-call basis, you might be considered self-employed.

Hiring and Residency Issues

You or your family cannot “hire” you as a nanny to your own children and receive tax deductions. You must also be legally able to work in the United States for someone to hire you as a nanny and claim that expense on his or her taxes. Your employer turns in a copy of a W-2 showing your employment. The deduction for employers is a personal deduction. It nanny wage payments cannot be filed on your business taxes.

Need Help with Nanny Taxes? Call the Tax Experts

Whether you hire a nanny or are a nanny, the tax laws are often confusing. Consulting with an accountant familiar with nanny taxes makes it easier and ensures you file correctly. Contact Silver Tax Group for more information on filing nanny taxes.