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You are reading: Paying your nanny on the books
note: park slope parents strongly recommend consulting a professional about these steps. the penalties associated with the incorrect payment and the time it takes to resolve are well worth the peace of mind that double verification provides.
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– Articles & Posts – FAQs – Setup – Ongoing – Support – Checklist for paying babysitting taxes
pay on the books:
park slope parents take accounting payments very seriously; is the law. If you pay a nanny more than $2,400 by 2022, you must pay Social Security and Medicare. You may be able to use a pre-tax flexible spending account and child and dependent tax credit that can help offset the extra cost of paying on the books. If you paid your babysitter more than $500.00 in a quarter, you must register as a New York employer and pay unemployment tax (both federal and New York state). it must also pay disability and perhaps worker’s compensation. in general, it’s 15% more to pay your babysitter on the books.
We’ve heard stories over the years of people who have been caught up in nasty post-employment entanglements paying back taxes, unemployment, and overtime for babysitters. We recommend that you hire a service to help you with tax preparation, as it can be complicated. We have a list of psp member reviewed nanny payroll services here. however, many people who pay in the books stay organized by using spreadsheets at home and setting up calendar/email reminders so they know when to file. We partnered with Homework Solutions to develop a step-by-step guide here: The NY Nanny Payroll Quick Start Guide. On the Books: Benefits for Your Babysitter: You help your babysitter accumulate retirement benefits. -your nanny has a written record of a work history linked to her ssn (or employment number). this registration can help them purchase an apartment/house for which they would not otherwise qualify. (note: you can also pay an undocumented worker on the books). – Your babysitter may qualify for earned income credits. -Your nanny will be unemployed if you need to fire her. (note: your nanny can file for unemployment and receive it even if she is paid off the books). – your babysitter will accumulate social security, disability, and medicare benefits.on the books: benefits for you – if your business has a child care flexible account you can pay using pre-tax income to offset costs. you can get child care tax credits (which help offset additional costs). (IRS Form 2441) – She can sleep better at night knowing she’s doing the “right” thing. don’t risk losing your professional license if you get caught. The data above shows that employers say they pay their babysitter off the books at the babysitter’s request, but remember that you as the employer must take responsibility for fines, unemployment, back taxes and penalties. . Paying our babysitter according to the books puts our relationship on a very professional and respectful level. In return, she’s more than flexible with free time and we basically help each other out with scheduling.”
1. articles/publications
Domestic Workers Act: Bill of Rights Establishes Wage and Hour Obligations for Employers (October 2011)
Doing the Right Thing by Paying the Nanny Tax (NY Times, January 2009)
New York State Department of Taxation and Finance Publication No. 27: “What You Need to Know When Hiring Domestic Staff”
department of labor “job rights and protections for domestic workers in new york”
IRS Publication 926: Household Employer Tax Guide
Senator Liz Krueger’s guide to hiring a nanny and other full-time domestic workers
new york state department of taxation and finance publication nys-50, “an employer’s guide to unemployment insurance, wage reporting, and tax withholding”
2. frequently asked questions
What does it mean to pay a babysitter “on the books”?
paying on the books means that you, as the employer, document your babysitter’s wages, pay in federal and state withholding (if your babysitter requests it), social security, medicare, and other amounts through regular estimated payments/withholdings . It is illegal to fail to properly document wages and pay taxes on income paid to a nanny.
Do I have to pay my babysitter on the books?
If you pay your babysitter more than $2000 in a calendar year, you are legally obligated to pay your babysitter on the books. Federal employment taxes are typically added to your personal tax return (annually), while state taxes are filed quarterly.
What if my babysitter says she doesn’t want to be paid on the books?
It’s up to you to decide you’re not paying on the books, not your babysitter. The employer (you) is responsible for penalties associated with not paying on the books, as well as back taxes, penalties, overtime pay, and other expenses, after the fact. Not all nannies may be aware of the short-term and long-term benefits of paying on the books, such as social security benefits, earned income credits, unemployment, and Medicaid. If you have the best nanny candidate in the entire world, you need to do what’s best for you and them: pay them on the books.
Is my babysitter an independent contractor that I can pay with a 1099?
no, no matter how you try to argue this, they are domestic employees, not independent contractors. will fill out a w-2, not a 1099.
If my babysitter is undocumented, can I still pay them on the books?
Without a social security number or an itin number, your nanny does not have the proper documentation to legally work in the united states, but you can pay them on the books. however, it is more difficult. if they are trying to get citizenship, she can help them if she pays taxes for them. if she chooses not to pay on the books since her nanny is undocumented, she is still required by law (via the Wage Theft Prevention Act) to notify them of her payment. In addition, they are still entitled to at least minimum wage and time and a half for all hours worked over 40 in a workweek (as stated in the Domestic Workers Bill of Rights – dwbr).
See Also: Mitch Rapp – Book Series In Order
Can I hire my babysitter paying her a weekly salary?
You can accept a weekly wage, but you must record it as hourly pay. however, you are not legally a salaried employee who can pay the same weekly rate for 35 hours one week and 45 hours the next week. You and your nanny may agree on an average, but the law doesn’t see it that way. Also, if they work more than 40 hours, you’ll need to document it as a regular and overtime rate. here is the formula to calculate the hourly rate with an agreed weekly salary: hourly rate = total weekly income / (40+(1.5*(total hours-40))).
What am I responsible for withholding from each paycheck?
– employee’s social security taxes (6.2% of gross wages)- employee’s medicare taxes (1.45% of gross wages)- federal and state income tax withholding ( if requested) (note: you are not required to withhold federal income tax from wages you pay a domestic worker. however, it can be done if the employee requests it and you agree to withhold it. if you do not withhold, you must explain to your babysitter who will owe tax at time of tax return (if required). In any event, if the nanny has children, they may be eligible for the Earned Income Credit (EIC) and will receive a refund on their federal income taxes).- Disability and Workers’ Compensation required if domestic worker works 40 or more hours per week.
what should I pay annually?
– social security & medicare taxes totaling 15.3% of wages consisting of 12.4% social security (6.2% withheld from your employee’s paycheck plus 6.2% from the employer) and 2, 9% Medicare (1.45% withheld from your employee plus 1.45% from the employer). Note: Traditionally, the employee share is deducted from agreed wages, which reduces the employee’s household tax payment, but some employers may decide to pay all of these taxes for their employee.- Federal Unemployment Tax (FUTA) ( approximately 6% – for 2016 – of the first $7,000 of cash wages) – state unemployment tax (suta) (an initial rate of 4.1% of the first $10,500 of wages).
How much more will I pay if I pay on the books versus off the books?
That depends on a lot of factors, but people who pay in the books pay about 11% more than those who pay in the books (plus ancillary costs if you use a service). Many nannies want to receive the same take-home pay as if they were working off the books, but it’s up to you to decide if you want or need to “pay” or “collect.” Plus, since you’re paying for things like unemployment, you save money when employment ends (NYC will pay the nanny’s unemployment). Finally, you’ll also be eligible for tax credits and possibly flexible spending credits through your business to offset the extra money compared to paying for the books.
what are some things to discuss with your babysitter?
Over the years, we’ve heard from parents who pay on the books that their babysitters had a hard time understanding how paying on the books affects their salary. if you tell a nanny you’ll make $15 an hour and you want to pay her on the books, you’ll need to decide (and explain) if it’s net pay (meaning you, as the employer, are paying around $18.25/hour ) or before taxes (where the babysitter will take home $12.35/hour). Additionally, some employers pay both the employer’s taxes and the nanny’s portion of the taxes, so a nanny may have that expectation. some nannies have a figure in mind (eg $15/hr for 40 hours) and hope to take home that amount (eg $600). this becomes complicated if your nanny works more than 40 hours a week because more than 40 hours is 1.5 of the base rate.
How does it work if I have a babysitting fee?
if you have a nanny share and want to pay your nanny on the books, you will both need to be registered with new york state as an employer and each family will need to file reports, issue pay stubs, etc. double the administrative costs. you can also form an llc with both families (which is more complicated).
3. configuration
federals:
– obtain a federal employee identification number (ein) so you can establish an employer/employee relationship. To do this, fill out Form SS-4 with the IRS. a frequently asked question about eins is here. can apply: online form ss-4, phone (800-829-4933), available immediately, via fax (859-669-5760), available in 4 days
– verify the nanny’s employment eligibility. complete an i-9 form to document your employee’s employment eligibility. this requires that you see official documents that ensure the nanny can work (for example, passports, birth certificates, social security cards, etc.). (keep a copy of all of these). note: your employee may have been able to obtain an individual tax identification number (itin) by completing a w-7 form. even if you are presented with this instead of a social security number, you still need to meet the i-9 form requirements.
– have the babysitter complete the w-4 (specifying the number of assignments). You can get Form W-4 online from the IRS. there is a withholding calculator here). You may want to discuss with your nanny that if they don’t have income taxes withheld, they will likely owe significant taxes when they file.
new york state:
– nys- register with the state of new york as an employer. Get a new york state (nys) withholding identification number and an unemployment insurance registration number (based on your federal ein). See New York State Publication #27 (“What You Need to Know If You Hire Home Help”) for detailed instructions.
– Arrange for disability, nysd paid family leave, and worker’s compensation. If your domestic worker works more than 40 hours a week, you must purchase disability insurance and worker’s compensation. These two forms of insurance will help protect you against accidents and will cover your babysitter if she is unable to work. you are required to have them at her place before your babysitting begins. your homeowners policy may cover some of this.
- worker’s compensation information
- insurance information
As of January 1, 2022, domestic workers who are hired directly by a private landlord and who work 20 hours or more per week for the private landlord must be covered by paid family leave and are eligible once They have been in employment for 26 consecutive weeks.
- paid family leave information
- updates for 2022
–nys: notify the new york state department of taxation and finance of the new hire: must be filed within 20 days of your nanny’s first day of work (see questions frequent here)
You will need the following information:
- employee name
- employee address
- employee social security number
- employer name
- address from employer
- employer identification number
- if dependent health benefits are available to newly hired employees (as of July 15, 2011).
note: you can also send a copy of the w-4 to the nys department. Finance, New Hire Notification, p.o. Box 15119, Albany, 12212-5119. or send a fax to 518-320-1080.
– notify your employee of their wages (effective April 9, 2011) as required by the Wage Theft Prevention Act (see FAQ). this is a law to notify workers of their pay rates. You are required to notify them and must keep signed copies on file for 6 years, but you are not required to submit this documentation. must do this annually (and in the babysitter’s primary language) and must contain:
- the employee’s rate(s) of pay;
- the basis of the employee’s rate(s) of pay (for example, hourly, shift, day, week, wage, piece, commission, or other);
- whether the employer intends to claim allowances as part of the minimum wage, including tip, meal, or lodging allowances, and the amount of such allowances;
- the employee’s regular payday designated by the employer in accordance with the pay frequency requirements of labor law1;
- the name of the employer and any names used by the employer to “do business as”;
- the physical address of the employer’s principal office or principal place of business, and a mailing address if different;
- the number of employer phone;
- any other information as the commissioner deems material and necessary.
To make it easier, you can get sample forms in different languages from the New York State Department of Labor. information about the employee’s hourly rate pay notice is here. Note: As of December 2014, the penalties for not providing written documentation increased. Be sure to provide this information in writing, even if it is not part of a full written agreement. you do not need to provide annual updates as long as the information has not changed.
4. in progress
Important: Keep a record of all payments to your babysitter (whether by check or cash), as well as the number of hours worked. Whether you pay on or off the books, if you are asked to prove how long they worked, it will be your word against theirs. As one parent noted, “The IRS intends ‘cash wages’ to include payment by check, money order, etc., but I think ‘cash wages’ is not very clear: people may think that They owe the tax if they pay by check.”
new york state:
– New York State Income Tax (Quarterly): You can withhold state income tax only at the request of your nanny. they must complete form it-2104 (which you can find here). (note: you must report these withholdings quarterly using form nys-45; form nys-1 if you have no more than $700 per quarter). You will mail them to NYS Employment Taxes, P.O. box 4119, binghamton, new york 13902-4112).
See Also: Are books better than films? – The King&039s School Chester
– nys unemployment insurance tax (suta) (quarterly) (required if you pay your nanny $500 or more, though voluntary on anything less than $500). paid quarterly (q1:4-30, q2: 7-31, q3: 10-31, q4: 1-31) using form nys-45 (and you can file online). You only pay unemployment taxes on the first $8,500 you pay your nanny. Your rate is determined by the New York State Department of Labor and will be sent to you. (Based on the amount of time you have been subject to the unemployment insurance law, the timeliness of your quarterly taxes and the timeliness of your taxes, as well as the balance in the state insurance trust fund. The base pay rate in 2011 it was 4.1% or about $350) so pay on time! nys dol has a site that helps you with unemployment insurance here. be sure to close your account if you no longer hire a babysitter. this can be done through the liability and determination section of the department of labor (212.266.5325). You will need to complete a New York State Department of Labor Form IA-15, Business Information Change Form for the Unemployment Insurance Program.
– workers’ compensation and disability insurance (annually) new york state requires that you purchase workers’ compensation and disability for employees who work 40 or more hours per week. your insurance provider may already include this, but check it out! It allows your babysitter to get unemployment if she gets hurt and protects you from liability for on-the-job injuries. disability costs about $80.00/year and workers compensation costs $400-$600/year.
Note: Penalties for failing to report proper wages, workers’ compensation, disability insurance, and taxes to the New York Department of Labor and Internal Revenue Service can cost you in the tens of thousands, not counting failed payments. extra hours to your babysitter. get it right the first time and avoid all these worries!
at home (you do not file this with any agency, but you must have proof when requested to have it done)
– annual wage notification (effective April 9, 2011) as required by the Wage Theft Prevention Act (see FAQ) . this is a new law to notify workers of their pay rates. must do this annually (and in the babysitter’s primary language) and must contain:
- the employee’s rate(s) of pay;
- the basis of the employee’s rate(s) of pay (for example, hourly, shift, day, week, salary, piece, commission, or other); whether the employer intends to claim allowances as part of the minimum wage, including tip, meal, or lodging allowances, and the amount of such allowances;
- the employee’s regular payday designated by the employer according to the frequency of pay requirements in labor law;
- the name of the employer and any “doing business as” name used by the employer;
- the physical address of the employer’s principal office or principal place of business, and a mailing address if different;
- the employer’s telephone number;
- any other information the commissioner deems material and necessary .”
federals:
– social security, medicare and unemployment taxes (federal unemployment tax (futa) and new york state unemployment insurance (suta): you make annual federal income tax and social security, medicare, and unemployment tax payments on Schedule H of your federal tax return (note: income tax withholding is voluntary, social security and medicare are mandatory).
- social security taxes (shared responsibility): employer- 6.2%, employee-6.2% of wages paid. (employee portion is withheld from wages).
- medicare taxes: employer-1.45% and employee-1.45% (employee portion is withheld from wages)
- Unemployment tax is applied to the first $7,000 you pay your nanny (after exempt payments are subtracted), the tax rate is currently approximately 0.08%, and payments go to: irs, p.o. box 804521, cincinnati, oh, 45280-4521. Unemployment taxes payable include Federal Unemployment Tax (FUTA) in addition to New York State Unemployment Insurance (SUTA) described above.
(Note: Some employers pay your nanny’s portion of these taxes so the take-home pay amount isn’t too low. If you do this, you’ll complete the w-2 form with no withholding for your employee.)
– federal withholding is also paid on schedule h. You can withhold federal income tax only on the employee’s W-4 application. For more information, see the IRS Employer Tax Guide.
– form w-2 and form w-3: four copies of the w-2 must be given to your employee and one machine-readable copy must be filed with the ssa, along with a w-3. (Note: These are sample forms. To request official IRS forms, call 1-800-tax-form (1-800-829-3676) or request Information Returns and Employer Returns online, and they will email you mail the scannable forms). you can file electronically, but you must be registered through their online merchant services.
Before March: Submit Form W-2 and Form W-3 to the Social Security Administration. Before April 15: File Schedule H with your federal income tax return (Form 1040). The amounts on Schedule H for social security and health insurance taxes depend on whether you pay the employer and employee portions of the taxes.
5. presentation assistance
While many complain about the tedium of regulations, there are now many resources available to help you pay your domestic worker “on the books.” You can do all the paperwork on this yourself, but there’s quite a bit, and the IRS isn’t too forgiving about missed deadlines. (“They treat you the same as if you were IBM,” said one mother).
Nanny tax preparation companies:
Several firms specialize solely in domestic worker tax law and have received good support from Park Slope parent members (here). these services will probably cost you $700 or so a year. your accountant can advise you on what is best for you.
6. checklist for paying nanny taxes
by paycheck, withheld
– social security tax and medicare- federal and state unemployment tax (federal unemployment tax (futa) and new york state unemployment insurance (suta))
quarterly
– nys unemployment and withholding through nys 45
annually
– complete the annual pay notice and have the employee sign it. keep for 6 years- pay workers compensation premium if worked 40 hours or more per week (separate policy)- pay disability premium (separate policy)- program h (with annual 1040)- w-2 copies to nanny- w-2 to ssa (must be machine readable)- w-3 to ssa (must be machine readable)
last updated February 2022
Disclaimer: This publication has been written for educational purposes only by parents of Park Slope and is not intended to be legal advice and should not be construed as or relied upon as legal advice. the publication may contain errors, inaccuracies and/or omissions. We recommend consulting a professional for specific advice.