Hiring a Nanny; What You Need to Know!
Finding and hiring a nanny can sometimes be a challenge. Handling the taxes does not need to be. If you have young ones at home who need to be taken care of, you’ll want to make sure you know how to properly handle having a household employee.
Do You Have a Household Employee?
In short, if you’re thinking about hiring a nanny, then yes, you’ll have a household employee. According to the IRS, a household employee is anyone you pay to provide domestic services in your household. The worker is your employee if you can control not only what work is done, but how it is done. Some other examples include maids, chauffeurs, personal chefs etc.
Setting Yourself Up as a Household Employer
- Obtain an employee identification number (EIN). This is needed for the W2 your employee receives and you’ll need it when you file tax returns. Getting an EIN can be done very easily and for free on the IRS website.
- Have your employee complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9. This is used for verifying the identity and employment authorization of those working in the US. While the form doesn’t need to be submitted, it’s important to have on file in case it’s ever required by a government official.
- Have your employee fill out form W-4. Aside from providing you with personal information you’ll need from your employee, it’ll also indicate how much they would like withheld in payroll taxes.
Handling Household Payroll
Your journey as a household employer requires you to follow similar guidelines as a traditional business. Traditionally, most household employees are paid hourly. However, it’s common to have variable hours, so having accurate timekeeping is important. This means you’ll also need a clear payroll schedule. The four types of schedules are: weekly, biweekly, semi-monthly, and monthly. Most importantly, if you pay cash wages to your household employees, you’ll need to familiarize yourself with Schedule H to accurately report household employment taxes.
Things to Consider
- Some states require you to follow a certain payroll schedule
- Most states require household employers to carry Workers’ Compensation insurance.
- Depending on your situation you may need to pay employment taxes.
Benefits of Paying Your Nanny on the Books
Having peace of mind is important to everyone and the last thing you want is to get audited for paying someone under the table. There are tax benefits you can take advantage of as well. For example, the dependent care account, a type of flexible spending account that allows you to use pretax dollars to pay for childcare related expenses. There’s also the child or dependent care tax credit, which allows you to itemize care-related expenses on your federal income tax return. Your nanny also gains benefits that come in the form or protections like reporting SS income, Medicare, and even qualifying for unemployment. This process is a win-win for both parties.
Establishing this type of professional relationship with a nanny may sound complicated. So, if you feel it’s too much, there are companies out there that can handle payrolls, tax forms, and everything else mentioned to help you get set up and go through the entire process.
In this episode, Luis talks about the following and more:
- How to set yourself up as an employer and setup payroll
- The tax forms that need to be filed when you’re a household employer
- The tax benefits of paying your nanny on the books
- Additional benefits that provide peace of mind and protection to you and your household employee
- Download the 3 Fundamental “Money Moves” to Make Before Turning 45
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- IRS Household Employer’s Tax Guide
- IRS Employer Identification Number (EIN) Online
- IRS Schedule H – Household Employment Taxes
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