My Nanny Is Great With My Kids, But Do I Really Have to Pay Her Taxes?

Due to COVID, a large number of families have found themselves seeking some sort of caregiver for their children during the work week. Whether it is a family member, daycare, or in-house help, people are willing to pay to make sure that their kids are safe. Some people may opt to hire a nanny, and some may even need to pay the federal government their “fair share” in the forms of social security and Medicare taxes.

A nanny would be considered a household employee and the family retaining their services would be considered a household employer. As a household employer, you only withhold and pay social security and Medicare taxes if the cash wages you paid her exceed the threshold amount for the year. For 2020, that amount is $2,200 or more. This means that if you end up paying your nanny more than $2,200 a year, you’re technically supposed to pay social security and Medicare taxes. The taxes are 15.3% of cash wages. Your share is 7.65% and her share is 7.65%. You may also be responsible for paying federal unemployment tax. Federal unemployment tax isn't withheld from employees' wages. You're not required to withhold income tax from a household employees’ wages. However, you and your nanny may agree for you to withhold income tax from her wages. If that is the case, have the nanny complete a Form W-4.

With some schools opting to go fully virtual and parents being forced to go back to their cubicles, it would not be out of the ordinary to see a larger number of people working as a nanny for someone else’s children. The professionals at The Center for Financial, Legal, and Tax Planning are more than knowledgeable with regards to the tax code and other ways to ensure compliance with IRS guidelines. Please contact us at (618) 997-3436 with any questions.