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To legally hire a nanny you need to verify that she’s eligible to work. You also need to pay Social Security taxes for her and keep track of her tax deductions, medical benefits, and other insurance. Do things right from the beginning and you’ll have fewer complications down the road.
See the resources section below for links to websites where you can download the forms you need.
Get your employer identification numbers
First you need to get federal and state employer identification numbers. For the federal number, you need to fill out and return Form SS-4. You can get this and all other federal tax forms from the Internal Revenue Service website or by calling (800) 829-4933.
For your state number, call your state employment office. (Look under “Employment” in the state government listings in your phone book.)
Verify eligibility to work in the United States
Call U.S. Citizenship and Immigration Services at (800) 375-5283 or visit the agency’swebsite for an I-9 form, which explains how to verify your nanny’s work eligibility.
You’ll probably need to see her passport or some combination of documents such as her Social Security card, driver’s license, birth certificate, passport, green card, or work permit. (If she doesn’t have any of these documents, she isn’t supposed to be employed in this country.)
It’s a good idea to make copies of the documents, and keep them in your records with the signed and dated I-9 form.
Report new hires or rehires
The government keeps track of all new hires and requires you, the employer, to notify the appropriate agency when you hire someone. Call your state employment office and ask about this procedure. (Again, look under “Employment” in the state government listings in your phone book.)
Set up a payroll system and pay taxes
You are responsible for paying Social Security and Medicare taxes for your nanny. You may also need to pay federal and state unemployment taxes, state income tax, or other fees.
Income taxes: You’re not required to withhold income taxes from your nanny’s paycheck, but if you don’t, she’ll have to make quarterly estimated tax payments or risk owing penalties at tax time.
Most people who employ a full-time nanny offer to deduct her income taxes as a convenience, so she won’t need to make quarterly estimated tax payments herself. If your nanny is part time, you probably don’t need to deduct income taxes for her.
If you and your nanny decide that you will withhold income taxes from her paycheck, she must complete Form W-4 (Employee’s Withholding Allowance Certificate).
On this form, your nanny determines her filing status and how many exemptions she’s taking. You’ll need this information to calculate how much to deduct from her paycheck for federal income taxes. Keep this form in your records. (You can also let your nanny know that she might be eligible for the Earned Income Credit, which may help reduce her tax burden.)
Social Security, Medicare, and other fees: If you pay your nanny at least $1,800 in wages in a year, you must also pay Social Security and Medicare taxes for her. You deduct half the Social Security tax from your nanny’s check, and pay the other half yourself. If you don’t do this, you may be subject to legal penalties, and you won’t be eligible for any childcare tax benefits on your federal income tax return.
The current Social Security rate requires deducting 6.2 percent from your nanny’s pay (for the first $110,100 of wages) and paying 12.4 percent to the IRS.
Medicare works the same way: You deduct 1.45 percent from your nanny’s wages and pay double that, or 2.9 percent, to the IRS.
You’re also responsible for federal (and often state) unemployment taxes and sometimes other fees. Federal unemployment tax is usually 0.8 percent on the first $7,000 of wages. This is not deducted from your nanny’s wages, but is paid directly to the IRS.
You can use an online tax calculatorto figure out how much to withhold for all these taxes. (Make sure your nanny’s paycheck stubs list her gross pay, any deductions, and the net amount of the check issued to her.)
You also can use the tax tables provided by the IRS to calculate how much to withhold for Social Security, Medicare, and federal income tax.
Report all federal taxes on your personal income tax return, using Schedule H with your Form 1040.
You must provide your nanny with copies of her W-2, which details her wages and deductions for the previous year, by January 31. Then file the form with the Social Security Administration, along with the transmittal Form W-3, by February 28 (or April 1 if you file electronically).
Keep the following records on file for at least four years:
- Your state and federal employer identification numbers
- Your nanny’s name, address, and Social Security number
- Her dates of employment
- Your nanny’s pay schedule (how often you pay her), wage, and taxes paid
- Copies of all necessary forms, such as the I-9, the W-2, payroll tax returns, payment coupons (for making quarterly payments), and the W-4, if used
- Dates and amounts of tax deposits (quarterly payments)
Resources and forms
- IRS: For more on your responsibilities as an employer and any federal forms you need, see the Internal Revenue Service’s Household Employer’s Tax Guide.
- USCIS: You can download Form I-9 from the website of U.S. Citizenship and Immigration Services.
- State tax forms: For links to state tax departments for forms and regulations, go to theFederation of Tax Administrators’ website.
Can I limit the paperwork but still hire a nanny legally?
You may want to consult an accountant or a lawyer who specializes in labor law (if she’s an expert on tax law, so much the better). She can help you obtain the forms, talk you through the process, or even take over the paperwork hassle.
Or you may choose to use a payroll service such as Breedlove & Associates, GTM Payroll Services, 4NannyTaxes, or NannyTax Inc. All four are experts in nanny taxes and work closely with the International Nanny Association. These services are set up to take care of the process for you and will walk you through each step.
Some nannies and employers try to circumvent these requirements by calling the nanny a “contractor,” but this isn’t as much of a loophole as it may seem. The IRS has strict guidelines to define employees and independent contractors, and nannies and other domestic helpers are generally considered employees. The distinction is a fine one and centers on who – you or the nanny – controls the work she does.
The IRS also takes into account whether she brings her own equipment and whether she provides the same service to others. If your nanny considers herself self-employed, brings her own supplies, and provides childcare services to more than one person, then you might be able to call her a contractor. (Nannies who report to a nanny service usually are considered contractors.) Otherwise she’s considered an employee.
It doesn’t matter how the nanny refers to herself or how you refer to her in an employment contract.