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This e-guide outlines the legal and tax issues associated with being a nanny employer. It’s not meant to substitute for professional legal or tax advice but it does give you a great overview of the issues you need to be aware of.
If you’d like more information or are interested in having a nanny tax specialist handle all your tax issues, check out Breedlove and Associates or HomeWork Solutions. Both are great companies, provide exceptional customer service and offer free consultations.
You are LEGALLY REQUIRED to:
1. Verify your nanny is legally PERMITTED TO WORK in the US.
2. Pay MINIMUM WAGE to your nanny, live-in or live-out, full-time, part-time or temporary, in every state. The current federal minimum wage is $7.25. If your state has a higher minimum wage, you must pay the higher wage. Click here to check on your state’s wage.
And yes, all the employers that are paying $5 an hour are breaking the law. If their nanny ever decides to report them, those employers will be paying all the unpaid regular and overtime wages, their nanny’s portion of Social Security and Medicare taxes on those wages, past payroll taxes, fines and penalties. For a more in-depth discussion on low nanny wages, check out Do Low Nanny Wages Mean Low Quality Care?
3. Pay OVERTIME, time and a half, to ALL live-out nannies and to live-in nannies working in California, Maryland, New Jersey and New York. Each state has a different threshold for OT hours so make sure you check on yours.
4. Pay EMPLOYER PAYROLL TAXES on your nanny’s gross wages. It averages out to be about 9 to 11% and includes Social Security, Medicare, federal unemployment, state unemployment and sometimes other state or local taxes. (If you’re paying a nanny less than $1,700 a year, check out the special rules here.)
5. WITHHOLD your nanny’s portion of Social Security and Medicare. If you don’t withhold these taxes in a timely manner, generally with every check, you’ll end up paying these taxes yourself, not your nanny. You don’t have to withhold federal or state taxes although most employers do.
6. Provide your nanny with a W-2 at the end of the year.
7. Carry WORKER’S COMPENSATION insurance in some states. Even if it’s not required, it’s a really good idea.
8. Pay your nanny the current IRS MILEAGE RATE for use of her car on the job.
Legally you CANNOT:
1. Claim your nanny is an INDEPENDENT CONTRACTOR. It’s been tried by many and is consistently rejected by the IRS. She’s a household employee.
2. Get around employment laws by creating a SEPARATE AGREEMENT WITH YOUR NANNY. It doesn’t matter what your nanny agrees to, the law overrides any individual agreement you may have.
3. Claim your nanny as an EMPLOYEE OF YOUR COMPANY. She may allow you to go to work and run your company, but she’s still a household employee.
Be smart and:
1. Check with a nanny tax expert about laws that may apply to YOUR PARTICULAR county, city or state.
2. Create a detailed NANNY CONTRACT before your nanny begins work. This will help you create a successful, long term nanny/family relationship and detail your COMPLIANCE with employment laws. The A to Z Nanny Contract is the best in the business. Guaranteed. (Disclaimer, I developed it).
3. Get a TAX BREAK by using your Dependent Care Account, Dependent Care Tax Credit, Health Insurance Tax Credit, or non-taxable types of compensation.
4. Make sure your nanny adds a BUSINESS USE RIDER to her auto insurance policy if she uses her car for work. In many states, her personal policy won’t cover an accident on the job and you could be held liable.
I hope this quick list was helpful. I’d love to hear your comments