How Do I Pay My Nanny Taxes – If you have someone working in your home for pay, you may have to pay domestic worker fees, often called “nanny fees” (we’ll use the terms interchangeably). You may have heard horror stories about how complex nanny fees are (and they certainly are). Nanny fees are complex because you are putting yourself in the position of a nanny’s employer.
We’ll start by determining whether you need to file nanny fees in the first place. After that, we’ll cover the federal and state requirements for becoming an employer, concluding with a list of common fees you must pay.
How Do I Pay My Nanny Taxes
We hate to be the bearer of bad news, but if you have a nanny, then you will most likely have to pay nanny fees. There are only a few legal ways to avoid domestic employee taxes:
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Unfortunately, you are still “on the hook” to pay nanny fees even if your nanny works through an agency, although some nanny agencies will help you pay nanny fees.
Before we go any further, let’s clear the air about something important. It can be very tempting to pay your nanny “under the table” (that is, not report her salary). The temptations are strong: it would reduce fees and deposit charges for both you and your nanny. However, don’t pay your nanny “under the table”: this is illegal. If your nanny asks or strongly suggests that you pay them under the table, it is your responsibility to refuse the suggestion and instead do things by the book.
In short, if you have a nanny (as opposed to another type of domestic worker), you most likely have to pay nanny taxes. With other domestic workers, it depends on how much control they have over their schedule, how they do their work, and whether they provide services to other clients.
Our recommendation is to go with a nanny service to handle your payroll obligations. While you can do this on your own and we’ll outline the instructions below, it’s easy to mess up any of these steps. You should Google “payroll nanny services” to find a service provider.
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With a title like that, aren’t you excited? Right, got it, we’re called TL;DR: Accounting because we’re supposed to give you the short version of everything. Unfortunately, there is only so much we can do to shorten complicated laws like payroll regulations. Support us if you can (or if you can’t, just give us a call and we’ll figure it out and give you clear instructions to follow!).
If you pay your nanny more than $2,200 in 2020, you’ll have to pay federal income taxes on their wages. The good news is that this will qualify the nanny for unemployment benefits if they later find themselves out of work, and also contribute their earnings to the Social Security benefits they will receive in retirement (Social Security will still be there when will we all retire. , right?).
Since you are about to become an employer, you first need an Employer Identification Number (EIN). You can go here to follow the instructions and get set up. You can use your own name as your employer name because you are hiring the nanny to work for you personally.
If you already have an EIN for yourself, great! You can check the box right now. Be sure to keep track of your EIN; is an important number.
Ways To Pay Nanny Taxes
Important Note: If you have an incorporated small business with employees, do not use your corporation’s EIN for your home nanny.
If you work or have worked as an employee, you (hopefully) received a W-2 for your work shortly after the end of each year you worked. Now that you are the employer, your job will be to provide a W-2 to your nanny. You can go here to register with the Social Security Administration. It is good to do this now instead of waiting until the last minute as the process can take several days.
The I-9 is a form created by the Department of Homeland Security (DHS) to prove that the nanny is legally eligible to work in the United States. This form is a legal requirement! You don’t have to deposit it anywhere; keep it in a very safe place. Although unlikely, it is possible that a DHS agent will show up at your door and ask to see this form, and you are expected to provide it within a few days. Why not prepare it ahead of time?
If you don’t remember what a W-4 is, it’s the form you fill out as a new employee to calculate federal withholding. Here is the W-4 form (note that it has recently changed).
Free Nanny Agreement Template & Faqs
The federal minimum wage is $7.25 per hour, the Washington state minimum wage is $13.50 per hour, and the Seattle minimum wage is $16.39 per hour. You must pay the highest minimum wage based on where your household is located.
You can go here to submit a Washington State business application. Yes, we agree that it’s a bit odd that you have to file a business claim even though you’re employed with a nanny to watch the kids while you’re at work. Regardless, it’s a requirement. If you’ve already filed for a business license for yourself as a sole proprietor (see this article on entity types), you can skip down a bit.
Your business type to be a nanny employer will be Sole Proprietorship, regardless of whether you are married and/or living with a partner. Remember that you are filing this to hire someone to work in your home, so only check that box when it asks about the types of employees you will be hiring.
[Note: If you already have a sole proprietorship in your name, just check the box that says you will hire someone to work on your home in addition to any other boxes that are already checked.]
Compensation & Taxes As A Nanny — Genuine Nannies
You can leave the EIN part blank if you don’t have one yet. You will obtain a UBI (Unified Business Identifier) from your state business application. This is also an important number to track. Don’t let the name fool you, the Unified Business Identifier is used in tandem with other business identifiers that you will need to remember.
Speaking of important numbers, registering in Washington will lead to your claim for unemployment benefits, which will get you an Employment Security Department (ESD) number, another number to keep in a safe place. Your nanny is entitled to unemployment benefits just like any other employee in Washington State. You can register with Secure Access Washington here to pay your unemployment tax online.
Typically, the next step in starting a business in Washington state is to apply for workers’ compensation benefits. This is only required if you have two or more domestic workers who work more than 40 hours a week on average.
Next up is the new Paid Family and Medical Leave (PFML) Act. You set up PFML reporting through the Secure Access Washington website here.
What You Need To Know About Nanny Tax Procedures
The final Washington state setup requirement is to report your new employee to hiring a nanny. You can do so here.
It wasn’t too bad, was it? No, it’s actually a lot of work. But it’s not like you have a choice here: these are all legal requirements.
Wow, that was a lot of information! Seriously, we recommend hiring a nanny payroll service to do this for you. If you really value a little money for a lot of free time (or if you’re really interested in how it all works), then more power to you you Don’t hesitate to ask for help when you need it.
You will need to report the above information on your personal tax return on Schedule H. When we work on a tax return, we request the nanny’s W-2 along with any tax payments made and unemployment taxes paid.
Guide To Household Employment Payroll & Taxes
The best practice is to pay your payroll taxes every quarter. If you don’t, these taxes will be due and added to your personal taxes owed on your 1040.
TL;DR: By hiring a nanny, you become an employer, which triggers federal, state, and local regulations, as well as payroll taxes. We recommend that you work with a nanny payroll provider to file and pay these taxes for you. We will also need this information for your personal tax return. Do you have questions? You can contact us anytime!
P.S. Want to learn how to better manage your money as a therapist? Now you can learn directly from Toni Cameron, CPA with our new on-demand webinars! Check out our most popular webinars here.
Khaled joined TL;DR as a director in December 2022 and quickly started the launch, bringing a new perspective to the TL;DR team and customers. He is a natural entrepreneur and leader who starts his days at 4am with a good cup of coffee to start projects before the business world wakes up. His only piece of
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