If you paid at least $2,000 to a nanny in 2016, you probably have to pay employment taxes … or risk a stiff IRS fine.
By law, nannies are always employees. And as the employer, you’re legally required to provide an official paycheck – and that involves the “nanny tax.”
The “nanny tax” covers both taxes you withhold from your household employee (the exact same way your employer takes taxes out of your paycheck) plus employer taxes. Those employer taxes include matching the amount of Social Security and Medicare (together called FICA) taxes you withheld from the nanny’s check and also federal and state unemployment taxes.
When you have an employee on payroll, there are annual forms to fill out, quarterly forms to file with the IRS, and regular tax payments to be made. According to IRS estimates, this will take you about 60 hours a year.
If you want to try to figure it all out yourself, start with the IRS booklet.
If you feel more comfortable hiring a payroll service – which many families do – be prepared to pay anywhere from $40-$60 per month on top of the nanny’s pay and employer payroll tax obligations. There are several reliable services available, but this is one of the most reputable (and affordable).