Nanny Tax & Salary Guide

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Nanny Lane’s Guide to Payroll & Taxes

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 his/her employer (you), and a contractor retains all control over himself and his 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 $2,100 for 2018. This means that if you pay a household employee cash wages greater than $2,100 in 2018, then you do not have to report and pay Social Security and Medicare taxes on that employee's 2012 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, but made easier by a nanny payroll expert

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.

  • You save time: An estimated 60 hours a year
  • You have peace of mind: By complying with current employment regulations and limiting your exposure for a possible audit
  • You save money from Tax Breaks: By paying your employee legally, you may be eligible for Dependent Care or Childcare Tax Credits
  • You save money by ensuring you avoid tax liability and penalties
  • You benefit from a happy employee!

When paid legally, your employee:

  • Has a legal employment history
  • May receive eligibility for important Social Security and Medicare Benefits
  • May receive eligibility for unemployment insurance coverage
  • May receive eligibility for disability benefits
  • Can receive workers' compensation
  • May qualify for Earned Income Credit

Learn more about our nanny payroll service

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