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The Top 3 Things on Nanny Taxes and Payroll

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Stephanie Davis

Aeriel view of a nanny doing arts and crafts with two children.

Are you thinking about hiring a nanny or other household employee? Before making this decision for your family, you'll want to understand everything that goes into hiring a household employee because you'd be taking on a new role as a household employer. Keep reading to learn the top three things you need to know about nanny taxes and payroll.

Understanding the Nanny Tax

The nanny tax refers to the payroll taxes, including Social Security and Medicare taxes, you will be required to withhold from your employee's paycheck as a household employer. Keep in mind that the name is misleading: even if you have a household employee like a housekeeper or landscaper, it’s still referred to as the nanny tax, and you’ll have to pay it if you are planning to pay your nanny or household employee $2,200 or more in 2020. This wage limit typically increases each year, so you'll need to do research each year to remain compliant. Many feel that nannies and other household employees can be paid cash under the table, and as a result, they don't pay the nanny tax and run the risk of paying a lot in costly fines. 

There are exceptions to the nanny tax. If you are getting childcare assistance from one of the following, you are not required to pay these payroll taxes

  • Your spouse
  • Your child under the age of 21
  • Your parent
  • Any employee under the age of 18

How to Get Started With Household Payroll

Now that you have a better understanding of the nanny tax, the next thing you need to do is get payroll for your new household employee up and running. As we previously mentioned, the nanny tax means that you cannot pay your employee under the table, and will be responsible for running payroll for your new employee. There are a few things you'll need to do in order to get your household payroll ready to go:

  • Apply for an Employer Identification Number (EIN). Because you will now be a household employer, you’ll need some way to prove that to the government. Applying for an EIN is easy and can be done online with the IRS. Once you have your EIN, you can get started on the rest of your payroll tasks.
  • Collect Form W-4 and Form I-9 from your household employee. Form W-4 is used by employees to indicate how much they want to be withheld from their paychecks for taxes each pay period. It's best practice to have your employee review Form W-4 every year, mainly at the end of the calendar year, so you have all of the information needed to deliver Form W-2 during tax season. Form I-9 is used to show that your new household employee is eligible to work in the U.S.
  • Understand your payroll schedule. There are four types of payroll schedules: weekly, bi-weekly, semi-monthly and monthly. As with many things payroll and tax-related, you'll want to check in with your state requirements to see if there is a specific schedule you are required to follow. Once you see what the requirements are for your state, communicate with your employee, and give them a copy of the schedule.

Where to Get Help With Household Payroll

If you're considering hiring a household employee, it's probably because you already have your hands full with a million other tasks and are looking for some extra help. The good news: if managing the nanny tax and household payroll seems overwhelming, there are plenty of resources to help you out. A nanny payroll service can help you remain compliant with government regulations by helping you accurately pay your household employee. You won't have to spend time calculating and withholding taxes every pay period and can have some piece of mind that you're protected. There are many options for household payroll so you'll want to keep the following in mind when researching:

  • Contracts. The world of household employees can be one that changes quickly and have high turnover. Because of the turnover, you don't want to be locked into a contract with your household payroll provider.
  • Customer service. You now have a better understanding as to how complicated the nanny tax and payroll can be. When you have questions getting started, you'll want a customer support team you can count on. Check the payroll provider for hours available, and the different ways, like phone or chat, that you can get help.
  • Mobile access. Chances are you're running a busy life on the go and may not always be attached to a computer to process payroll. A mobile app for payroll can make the process simple and gives you more flexibility to pay your household employee from the palm of your hand.

Bottom Line

Understanding everything to do with the nanny tax and payroll can be overwhelming in the beginning. Thankfully, hiring nannies and other household employees is common, so there are plenty of resources available to get help on managing this new working relationship.

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This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.