Hiring a nanny means becoming a household employer, which comes with important tax responsibilities commonly referred to as the “nanny tax.”
Step 1: Understand Nanny Tax Obligations
When you hire a nanny, you are required to withhold and pay Social Security, Medicare, and federal and state unemployment taxes. These legal requirements ensure both the nanny and the employer are protected. You can find more information about the services available to assist with hiring through HSI’s Private Nanny Service.
Step 2: Obtain an Employer Identification Number (EIN)
As a household employer, you must apply for an EIN through the IRS. This number is necessary for filing taxes and issuing the required forms to your nanny.
Step 3: Complete Form I-9
Form I-9 verifies your nanny’s identity and employment eligibility. This form is required by federal law for all employees in the United States.
Step 4: Withhold and Pay Taxes
You are responsible for withholding your nanny’s portion of Social Security and Medicare taxes and contributing the employer’s share. Additionally, you may need to pay federal and state unemployment taxes and provide a year-end W-2 form to your nanny.
Step 5: File the Appropriate Forms
At tax time, household employers must file Schedule H with their federal return to report nanny wages and taxes paid. A W-2 form must also be provided to the nanny by January 31 each year.
Step 6: Consider Payroll Services for Tax Compliance
To ensure accurate withholding and simplify the process, many families use payroll services that specialize in household employment. Household Staffing International can guide you through these steps and offer additional support through their Private Nanny Service.
Step 7: The Benefits of Paying Nannies Legally
Paying your nanny legally provides the nanny with Social Security and Medicare benefits and allows families to take advantage of tax credits like the Dependent Care Tax Credit or Flexible Spending Accounts.
For additional resources on domestic staffing, explore our Housekeeper Services and Private Chef Services.
Hiring a nanny can feel complex, but with careful planning and professional support, families can navigate the process smoothly while remaining fully compliant with state and federal laws.