Understanding the legal and tax issues that come with being a nanny employer can feel like making your way through a maze of scattered and often confusing information. This article offers a quick yet comprehensive guide through what employers are legally required to do, what they legally cannot do, and what are the top best practices in the industry. Disclaimer: this guide is for information purposes only, it isn’t meant to substitute for professional legal or tax advice.
If you employ a nanny full-time, part-time, live-out, live-in, in a share, or in a temporary position, you are LEGALLY REQUIRED to:
verify your nanny is legally PERMITTED TO WORK in the US by completing an I-9 form.
pay your nanny an hourly wage, not a SALARY (set amount regardless of hours). Get more information here.
pay your nanny at least MINIMUM WAGE. The current federal minimum wage is $7.25. If your state or city is one of the many that has a higher minimum wage, you must pay the higher wage. Here’s a quick reference guide to your area’s minimum wage requirements. (Side notes: 1. in every area a competitive rate is higher, often much higher, than the area’s minimum wage, 2. in a share, the employers’ combined wages must reach the minimum wage threshold.)
pay OVERTIME to ALL live-out nannies working more than 40 hours in a workweek and to live-in nannies working in specific states or cities working more than 40 hours in a workweek. Your state, county, or city may have a different threshold for overtime hours so make sure you check on yours.
pay EMPLOYER PAYROLL TAXES on your nanny’s gross wages. These taxes average out to be about 10% of wages and includes Social Security, Medicare, federal unemployment, state unemployment and depending on where you live, sometimes other state or local taxes. (If you’re paying a nanny less than $2,300 for 2021, you’re exempt from some taxes. Get more information here.)
WITHHOLD your nanny’s portion of Social Security and Medicare if you will pay them more than $2,300 in 2021. If you don’t withhold these taxes in a timely manner, generally with every check, you’ll end up paying these taxes yourself, not your nanny. You don’t have to withhold federal or state taxes although most employers do. Get more information here.
complete quarterly and year-end TAX DOCUMENTS. Get more information here.
provide your nanny with a W-2 at the end of the year if you paid them more than $2,300 during the year. Get more information here.
if you live in certain states, counties, or cities, you MAY BE LEGALLY REQUIRED to provide:
a PAY STUB to your nanny with every paycheck
WORKER’S COMPENSATION insurance
PAID SICK TIME
PAID FAMILY LEAVE
IRS MILEAGE RATE, 56 cents per mile for 2021, for use of the nanny’s car on the job
To find out the requirements that apply to you, check out the area specific information here.
Legally you CANNOT:
pay your nanny a SALARY (set amount regardless of hours). Nannies must be paid for every hour they work and paid overtime for all hours over 40 in a workweek or whatever your state’s overtime threshold is. Get more information here.
BANK HOURS by rolling paid hours into a future workweek. If you pay your nanny for hours you don’t need them (e.g. you go on vacation), you cannot require them to make up those hours in a later workweek. Get more information here.
claim your nanny is an INDEPENDENT CONTRACTOR. It’s been tried by many and is consistently rejected by the IRS. Your nanny is a household employee. Get more information here.
get around EMPLOYMENT LAW (e.g. excluding nanny from worker’s compensation, classifying nanny as independent contractor) by including clauses in your nanny agreement counter to the law. It doesn’t matter what your nanny agrees to, the law overrides any individual agreement you may have.
claim your nanny as an EMPLOYEE OF YOUR COMPANY. They may allow you to go to work and run your company, but your nanny’s still a household employee. Get more information here.
Be smart and:
create a detailed NANNY CONTRACT before your nanny begins work. This will help you create a successful, long term nanny/family relationship and detail your COMPLIANCE with employment and tax laws. The A to Z Nanny Contract is the best in the business. Guaranteed.
make sure your nanny adds a BUSINESS USE RIDER to their auto insurance policy and increase the PROTECTION LIMITS on their policy if your nanny uses their own car for work.
take advantage of the significant boost to TAX BREAKS provided by the 2021 American Rescue Plan. Get more information here.
save money for both you and your nanny by providing NON-TAXABLE BENEFITS like health insurance, public transportation, parking, cell phone, and educational assistance. Get more information here.
For More Information
If you need more information or are thinking about having a professional handle your nanny taxes, I recommend two nanny tax companies, Homework Solutions and HomePay by Care (formally Breedlove and Associates). Both are great companies, provide exceptional customer service and offer free consultations. Make sure you tell them you were referred by Nanny Care Hub!
If you found this article helpful, sign up for our mailing list and get additional resources delivered right to your inbox.
- 3 Must Dos When Writing or Expanding Your Nanny Job Description - November 15, 2023
- Guaranteed Hours and Required Availability - October 10, 2023
- Is My Nanny Employment Relationship Abusive? - August 9, 2023