Nanny Tax & Salary Guide

Life is busy, especially life with kids. We recognize that you have better things to do than worry about how to pay your nanny, so if you need help setting up your nanny’s payroll, keep reading!

Step 1: Determine if you have a household employee or independent contractor.

The main difference between an employee and a contractor is that an employee operates under the control and supervision of their employer (you), and a contractor retains all control over their services.

Household professionals include nannies, home health aides, private nurses, cooks, gardeners, caretakers, and other similar domestic workers.

For example, a nurse who has their own company and comes by once a week to provide medical services to an aging parent is a contractor; a nanny who cares for your children in your home is an employee. For more information visit the IRS Publication 926

Step 2: Research tax laws

Household Employer Taxes

The Social Security and Medicare wage threshold is $2,400 for 2022. This means that if you pay a household employee cash wages greater than $2,400 in 2022, then you have to report and pay Social Security and Medicare taxes on that employee's wages. For more information visit the IRS Publication 926

Employers can expect to pay 9-11% of their employee's gross pay, including:

• Federal and state unemployment insurance (about 2-4% for most states)
• 50% of Social Security and Medicare (7.65%)
• Other state taxes where required, such as employment training or workforce taxes

For more information on tax calculations, it’s always better to speak to a specialist. Nanny Lane payroll specialists can give you the assistance you need.

Step 3: Follow payroll regulations

According to the Federal Labor Standards Act, all household employees must be paid at least minimum wage ($7.25/hour - higher in some states), however, benefits such as room and board can account for a portion of that wage if you have a live-in nanny. There is no limit to the number of hours an employee can work - provided there is a mutual agreement. However, overtime may be required in your state. Paid vacations, holidays, and sick days are not required by law but often provided by employers.

Step 4: Filing the paperwork

Filing nanny payroll paperwork and can tedious. You'll have to complete Federal and State tax filings: monthly (income tax, medicare, social security taxes) and quarterly (unemployment taxes)

But it can made easier by a nanny payroll service.

Step 5: Add Workers' Compensation to your insurance policy

Most states require household employers to carry a workers' compensation and/or disability policy if you employ someone on a full or part-time basis. These policies will cover you from lawsuits and liability in the event that your employee is injured on the job. If your state requires this, you can either contact your state's insurance fund or your homeowner's insurance company.

Why pay your nanny legally?

When you pay your nanny legally, you'll:

• Save time: An estimated 60 hours a year
• Get peace of mind: By complying with current employment regulations and limiting your exposure for a possible audit
• Save money: By paying your employee legally, you may be eligible for Dependent Care or Childcare Tax Credits. You'll also avoid tax liability and penalties.
• Have a happier nanny: Your nanny also gets benefits from being paid legally.

When your nanny gets paid legally, they'll:

• Can receive important Future Social Security and Medicare benefits
• Have a legal employment history
• Attain creditworthiness when applying for loans 
• Can qualify for in-state college tuition rates
• Can qualify for Disability Benefits if they have a non-work related illness or need to take maternity leave
• Can qualify Workers Compensation if you get sick or injured while working 
• Can qualify for Unemployment Benefits and Leave Benefits if they lose their job (in some states)

Not interested in payroll and taxes?

You could learn the details of nanny taxes and employment laws, or you could spend more time with your loved ones and let us handle this for you. Learn more about our nanny payroll service. Visit our FAQ for more