Nanny Taxes 101
Why is it important to pay your nanny legally?
Although many household workers prefer cash, you may still be responsible for the nanny tax. Unfortunately, the IRS can find out if you don’t pay taxes on household employees.
Example: your nanny gets hurt on the job and files for worker’s comp coverage or unemployment benefits. Now it becomes obvious that they aren’t covered and you, as the employer and homeowner are on the hook.
In the event of an audit, the IRS will likely ask about regular payments (even in cash) being made to a single person. In the end it is easier and less risky to pay your nanny legally.
How do I know if I have a household employee?
If you pay your nanny or caregiver more than $2,100 in 2019 you must pay a nanny tax. A nanny is a “household employee” because you control the work, hours and requirements while they are in your home. For each household employee paid more than $2,100 in a year you are responsible for withholding Social Security, Medicare and the Federal Unemployment Tax.
Taxes are often confusing. Many families think it is easier to skip the taxes and just pay the nanny “under the table.” This is tempting, but it is illegal and easier to get caught than you might think. Failing to pay the nanny taxes can be incredibly costly to you in the end with up to $25,000 in penalties. You are the employer, you are responsible.
Most families can save thousands per year by paying the nanny tax! Here’s how:
Pre-tax FSA (flexible spending accounts) are available through many employers. This allows employees to set aside a certain amount of their pre-tax salary on payments towards qualifying costs including childcare.
Child and Dependent Care Tax Credits: This can return up to twenty percent of your childcare expense in the form of tax credits.
We have partnered with GTM Payroll Services to make things simple. As experts in the field of household employees, they will help you every step of the way! They will offer all tax information you specific to Arizona. Nanny payroll, direct deposit, worker’s comp and health insurance are also available! GTM is an all in one provider and a valuable resource. We are proud to recommend their services.
Did we get you wondering how much nanny taxes might cost you? (it is probably less than you think…) Check out our Nanny Tax Calculator!
