Babysitter (and nanny) tax time
If you paid more than $600 to any one nanny or babysitter this year, you're required by the IRS to report their wages and you may have to pay payroll taxes on their behalf, as well. Either way, you are going to need their social security number and home address, so go ahead and get that now. The question of the day is, are you an employer or a customer of your care provider? There are a couple of questions the IRS considers. First, is the work performed in your home? If all the care takes place under your roof, you're probably going to be considered an employer. Second, assuming that the care takes place outside of your home (in a nanny share, or in the babysitter's home), do you "control not only the work they do but how they do it"? If you do, you are an employer. You might not be an employer if, for instance, you have a nanny share outside your home where the nanny makes her own "lesson plans" and decides when to feed your child, whether to wash the dishes, etc. In this case, your nanny might be the employee of the primary parent (the one whose home in which the care is given), but would not be your employee. Another instance would be a stay-at-home mom who cared for a few other children in her own home. You might be able to get away with calling yourself a customer of your child's caregiver if the care was provided in your home, but your headstrong nanny told you at the beginning how things were going to work. Are you an employer? You may have to pay federal unemployment taxes, medicare and social security on behalf of your employee (you can choose to withhold your employee's portion, or pay it yourself if you're especially generous - or if you didn't think of this until after the wages were paid. Whoops.). Unless your employee is your spouse, child (under 21) or parent, or under 18, you have to pay social security and medicare taxes to the tune of 15.3% of the total wages. If you're withholding, you can withhold 7.65%. If the wages were over $1,000 for the year, and the employee is not your spouse, parent, or child under 21, you have to pay 0.8% of the total cash wages as federal unemployment tax, up to $7,000 of wages. If you have an employee, you need an EIN. You need to obtain one by January 31 of the year following the payment of wages (if you paid wages in 2004, you'll need one by January 31, 2005). You can obtain the EIN by calling 800-829-4933; by submitting a form; or you can apply online. Once you have an EIN, you'll need to submit a W-2 reporting your employee's wages. The form is here, but it's printed with special ink; you'll need to pick one up from a local accountant or order one from the IRS at 800-829-3676. You have to submit one page to the SSA by February 28 along with form W-3. If you're filing electronically, you have until the end of March. The employee's copies are due to the employee "generally by January 31." If you have determined your provider is not an employee, you'll have to submit form 1096. Like the W-2, this is printed with special inks and will have to be requested from 800-829-3676. Also, it is due by February 28 to the government, and as early as possible to your provider. For some reason, I haven't been able to find verification of this on the IRS web site, but an accountant friend told me this is what to do. Oh, and you DO put an "x" in the box, "if this is your final return, put an x here." Now that you've taken care of your care provider, it's time to take care of yourself. In most cases, you'll be able to deduct the child care expenses up to a limit (the worksheet on the form instructions will tell you how much). The form you need: 2441. Attach this to your 1040, enter your child care tax credit on line 47, and watch your refunds roll in. If you're an employer, you'll need to fill out and file Schedule H with your 1040, as well. What if you are the stay-at-home parent I referred to above? You're probably self-employed. If so, read on for more info.
If you are self-employed, you are going to have to file 1040 schedule SE.
Hello, I have a part time nanny share that takes place entirely outside my home. Based on your article regarding nanny shares and tax time, it seems the nanny could be considered the employee of the primary parent, but not my employee. What does this mean for tax purposes? The nanny will be paid more than $600 during the year by my family. Thank you for any assistance.
Posted by: Stacy | September 04, 2006 at 06:50 AM
Good evening,
Im 23. I do childcare while I attend college. Im independent. The parents pay me weekly($12/hr) w a personal check. I work 30hrs per week.
How do I take out taxes so I dont owe money? Parents dont want to.
Thanks.
Posted by: lk | July 17, 2008 at 02:23 PM
Hi there! I am thinking of hiring a friend to watch my daughter full-time, for 8 months, in her home. She is a stay-at-home mom of two girls. She is asking for $1000 a month. What are the tax laws on this? Also, can we get around some of the taxes by paying her $300 a month and then gifting her grocery or gas gift cards?
Posted by: Ambrocia | February 10, 2009 at 03:29 PM
If you have nanny for your child, you to understand the nanny tax. The IRS requires anyone with household help, such as babysitter or housekeeper t, to pay social security and medicare taxes if annual pay crosses a set threshold.
Posted by: Work Parents | March 19, 2011 at 05:06 AM
IRS Publication 926 - Household Employer's Tax Guide will help: www.irs.gov/pub/irs-pdf/p926.pdf
If you control the pay, responsibilities, work load, etc. then you are the employer and your nanny is your employee. Even if you are sharing a nanny, this still is the case.
GTM Payroll Services gtm.com is a household payroll and tax company that specializes in nannytaxes, insurance, hr, etc. They can definitely help anyswer any questions.
Posted by: Nicole | July 11, 2011 at 08:24 AM
I didn't know that this much went in to nanny services. So what if we do if we babysat a family and did earn more than $600? Should we bother them the family for tax information? I've always wanted to be a nanny and I want to make sure I do it legally.
Posted by: Nanny Nancy | February 28, 2012 at 09:22 AM
Hi, Nanny Nancy. The article above is pretty confusing and I'm sorry it even starts with "if you paid a nanny more than $600" because that figure really has nothing to do nannies.
Someone above mentioned a nanny tax service, GTM & Associates, and I'll add Breedlove & Associates to the list of national experts who would be happy to answer any questions. I own Care Givers Placement Agency, a local nanny service, and am happy to answer questions, too. http://www.cgpa.com Call me at 503-244-6370 if you need additional information concerning the following:
All nannies are employees of the family for whom they work. Families are exempt, however, from paying employment taxes or issuing W2s unless they pay a nanny over $1700 a year (2011) or $1800 a year (2012). So, if a family you work for paid you more than $1700 last year they should have already issued you a W2 so you can file your 1040. You certainly should contact them. But not unless it's over $1700 (not $600).
What to do with the rest of your income? How to file taxes? You should report everything you earn as a babysitter/nanny on your 1040 and pay your income taxes. NOT your FICA. Since the family was exempt from paying FICA, so are you. Don't file as self employed. That only means you pay 100% of your FICA. And, it's a classification so it isn't the correct way to file taxes.
http://www.breedlove-online.com is a great source of information if you have further questions.
Posted by: Sharyn | February 28, 2012 at 01:54 PM
I have a woman that watches my son at her house, she makes the lesson plans, decides what he eats, what he does all day, when he goes down for his nap, but she is requesting that we fill out the nanny tax thing... It does not seem right because she is not watching our child in our house. She is doing it in her own home. Can anyone help me? Do I need to pay taxes on her?
Posted by: Nicole | January 24, 2013 at 03:47 PM
I live in Pa and I babysat in my home for about 6months, (for a family member) I earned around 2,000. I had no clue you had to have taxes taken out until the parent of the child I babysit for came to me about a week ago and told me that she was going to claim child care.
I made up our daly plan/activities and gave drinks and snacks and sides with lunch, whitch none I can claim because I didnt keep any receptes, and taxes were never discused. My question to you is Who should have to pay these taxes? I read your "Babysitter and nanny tax time" I was left confused...
Thank you so much for your time!
Jennifer Pearsall
Posted by: Jen | February 06, 2013 at 03:54 PM
We owe a lot from our nannies employed. This post is very informational. Nannies and employers must read and understand these diff. situations.
Posted by: Oberlin Winchester | March 21, 2013 at 01:10 AM
I agree. Nannies and employers must have to read this for better understanding.
Posted by: Beadles Buss | April 30, 2013 at 03:05 AM
It really isn't as confusing as the article makes it out to be.
For the mom who was going to employ her friend for $1000 per month, but in her friend's house: whether you pay her in cash or gift cards, the IRS considers that income. However, since it's in her house and she's probably setting the rules, she's running an in home daycare. So she's self employed and is a contractor. That she chooses to have just 1 client is immaterial.
For NIcole, same thing. In fact these women SHOULD file themselves as self employed because they'll actually see significant tax benefits (like deducting their housing expenses, paying taxes only on income after those deductions, etc).
For the PA resident, also the same thing, except you need to file as self employed. Since you only made $2,000 and can take all sorts of deductions (any decent tax software will walk you through it), you probably won't owe anything
Posted by: zumpie | April 30, 2013 at 07:18 AM