Top questions parents have when employing a nanny

September 24, 2015 : Annelise Wiens

Parents who hire a nanny find they are employers, face “nanny tax”

New parents face a lot of surprises when they bring their child home, including a possible surprise from the IRS. If they hire a nanny, they may be considered household employers and could be responsible for paying and withholding Social Security, Medicare and unemployment taxes. They also may need to issue their nanny a W-2 and submit it to the federal government. Although new parents may not expect to have responsibilities as an employer added to their responsibilities as parents, understanding the requirements and which ones apply to them will help them navigate their new roles.

1. When is a nanny a household employee?

Parents have a household employee if they hire a nanny and control what work is done and how it is done. Even if the parents found their nanny through an agency, they are the nanny’s employer if they have control over the work and pay the nanny directly. It likewise does not matter if the nanny is full-time or part-time or how often they pay the nanny.

Even if a nanny works for more than one family in a “nanny share,” both families typically control the work and how it is done. In that case, each family would be an employer and would pay taxes on the wages it had agreed to pay.

2. When isn’t a nanny a household employee?

While most nannies are household employees, some could be self-employed. Self-employed child care providers provide their own supplies or equipment and offer their services to the public, perhaps for a number of different clients. These kinds of care providers are generally in-home day care providers and not household employees.

3. What employment taxes do household employers pay?

Like other employers, parents must pay certain taxes. If parents pay a nanny more than $1,900 in a year, the nanny and the parents each pay 6.2 percent for Social Security tax and 1.45 percent for Medicare tax for a total of 15.3 percent. The parents are responsible for remitting both their share of the Social Security and Medicare taxes and the nanny’s.

The parents might also need to pay the 6 percent federal unemployment tax.

4. What about grandparents or siblings who work as a paid nanny?

Grandparents or older siblings are considered household employees if they meet the other requirements of a household employee. However, their wages are normally not subject to Social Security and Medicare taxes.

5. What income tax requirements do household employers face?

The parents do not have to withhold income tax from their nanny’s pay, but may choose to do so if the nanny asks them to. In that case, the nanny would need to complete a W-4 to allow the employer to calculate the correct withholding amount.

6. What does a household employer do with withheld taxes?

Household employers pay the withheld taxes along with their own income taxes due by April 15.

7. What are the tax benefits for parents with a nanny?

Parents who use a nanny for their child care needs may be eligible for the child care credit. The credit can be worth as much as 35 percent of $6,000 in qualifying expenses for two or more children.

The parents also may be eligible to use their dependent care Flexible Spending Account (FSA) to pay their child care expenses. An employer-sponsored dependent care FSA allows the parent to save up to $5,000 pretax to use toward expenses. A tax professional can help parents maximize their child care tax benefits.

8. What forms do household employers need and where do they submit them?

Parents will need to file Schedule H with their own federal income tax return which reports Social Security, Medicare, unemployment tax and any income tax they withheld from their nanny’s wages.

They will also need to issue a W-2 to their nanny by the end of January and submit a copy, along with Form W-3, to the Social Security Administration by the end of February.

9. What about state taxes?

Parents aren’t done yet. The questions begin again when it comes to state taxes, as each state has different requirements and processes. Parents can check with their state department of revenue for information or consult a tax professional for assistance.

New parents have a lot to look forward to. For some it may include becoming an employer with tax responsibilities they didn’t anticipate. But by learning about and planning for their new responsibilities – and getting help when they need it – parents will be able to take on both of their new roles with confidence.

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Annelise Wiens

Annelise Wiens

Editor and Producer

As the newsroom editor, Annelise Wiens is interested in more than just tax and industry news, but the stories of H&R Block's 80,000 associates, their communities and H&R Block's world headquarters in Kansas City, Missouri. Wiens joined H&R Block in 2014 from a public relations agency, where she worked with clients in the financial services industry. Before that, she worked as a communicator for a senior member of the United States House of Representatives. She graduated from Biola University in La Mirada, CA with a bachelor's degree in history.

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