so you’ve hired a babysitter. unlike her 15 year old niece who charges her $10 an hour and as much ice cream in the fridge as she wants to babysit her son for one night, her babysitter is a professional and she needs to be paid as such. that means posting payroll items like taxes and benefits. This provides long-term protections and bonuses for both you and the person you are employing. The nanny gets access to benefits like medicare and social security, while you know she has everything under control, including nanny taxes, on April 15.
so how do you pay a nanny the right way and what paperwork needs to be filled out? here’s what she needs to know.
You are reading: How to pay a nanny on the books
nanny taxes and how to pay them
If you plan to pay your babysitter more than $2,200 a year, or an average of at least $183 a month, you must pay taxes. and, yes, you must pay them. In fact, both you and your nanny are in a better position when paying and filing taxes, with tax breaks for you and benefits for them. it is also the law.
“We do it not just to comply with the law, but because it’s the morally right thing to do,” says father and labor law expert Michael Oswalt, an associate professor at the University of Northern Illinois School of Law. “Nannies are employees, not independent contractors.”
Because all of our employment protections depend on employment status, adds Oswalt, misclassifying a nanny denies them what few safety net protections there are. “Homecare work is already precarious and often underpaid,” she says. “misclassification aggravates vulnerability”. Why do that to someone, especially someone who takes care of her child?
paying nanny taxes qualifies your nanny for healthcare subsidies, unemployment benefits in case you lose your job through no fault of your own (i.e. a pandemic), verifiable employment history to apply for loans, and insurance social and medicare for when you retire.
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In addition to the potential tax savings, paying nanny taxes gives you peace of mind that the IRS won’t be knocking on your door. if you get caught for not paying, like when your ex nanny files for unemployment after your child enters school full time and the unemployment office sees that you haven’t paid any taxes, you can expect an audit, back taxes plus penalties and interest, and potentially tax evasion charges. That doesn’t end well for anyone.
how to pay for a babysitter: payment, paperwork and taxes
Now that you’re convinced you owe nanny taxes, there are a few paperwork to tackle. although it depends, the most likely scenario is that paperwork is needed for federal and state taxes.
“Many employment laws vary by state, so the protections provided by the employee’s state may differ,” says Oswalt. For example, in Illinois, where Oswalt resides, you are required to provide your babysitter with paid sick leave. that is not true in other places.
A service like homepay from care.com will handle most of the details (direct deposit, generate the w-2, prorate all taxes, tell you if you need to buy workers comp, etc.), but if you go by the DIY route, it is important to follow these steps:
1. get an ein and fill out an i-9, w-4 and state withholding form
As your nanny’s employer, you need a federal Employer Identification Number (EIN). request one online. Your nanny must complete an i-9 form, a federal w-4 form (pdf), and a state withholding form if her state collects income taxes.
2. pay your babysitter’s salary
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Count your babysitter’s hours, multiply by your hourly rate, and add overtime pay to get the gross (before taxes) amount you owe. Subtract Social Security and Medicare taxes, income taxes, and any other state or local taxes that may apply, usually about 10 percent of gross wages. net is your nanny’s net salary, so cut that check.
3. pay nanny taxes
What you deducted from your nanny’s wages is what you must send to the IRS and your state’s tax agency. pay your estimated federal taxes (1040) online or by mail; do it every three months to avoid underpayment penalties and interest. Your state’s requirements may differ, so check them out and pay for that, too, if necessary.
4. tax return preparation
Once the year is over, you’ll need to fill out a few more forms by the April tax deadline. Provide your nanny with a w-2 form for her tax returns and file a copy of the w-2 and w-3 with the social security administration. you may also need to complete an annual reconciliation form if your state requires one. Finally, you’ll need to file Schedule H, which allows you to report household employment taxes, with your federal income tax return.
using a nanny share? this is how taxes and payments work
Are you using a shared babysitting service to split childcare costs with another family? Both of you will need to follow the steps above to establish yourself as a home employer with the IRS and your state, pay the nanny separately, and withhold and remit the appropriate taxes to the IRS and state. and make sure the combined rates you’re paying add up to the minimum wage in your area.
Following the rules when it comes to paying a nanny or caregiver fairly and according to the books ensures they receive all the legal benefits of the work they do. these employees often become members of the family; it is important to see that they are given the most you can give.
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