The government considers nannies to be employees of a family's household. If you're a nanny, this means your employer has to pay taxes and so do you. Find out what you need to know about the nanny tax and avoid the IRS.
What is the Nanny Tax?
If you work for any formalized business, you’re required to pay income taxes to the government, and your employer is also required to pay income taxes for every employee. Typically, the taxes you pay are withheld from your paycheck to avoid lump tax sums at the end of the year. As a nanny, the government recognizes you as an employee of the family you work for. This means that like any other employer and employee, you’re both required to pay taxes. However, this is only the case if you are paid more the $1800 per year. So if you worked for less than $200 a week for nine weeks, you and your employer are exempt from the nanny tax.
What Money Will Be Withheld?
Generally speaking, Medicare and Social Security Taxes will be withheld from your paycheck. However, if you end up making over the low income threshold, you should consider asking your employer to withhold income taxes from your paycheck just like you would at a formal company. This requires you both to fill out certain tax forms.
What Will the Family Need From You?
In order for your employing family to report the taxes on the proper tax forms, they’ll need a few documents from you (just like any other employer would). They’ll need your federal and state identification numbers, all of your accurate payroll information, your W-4 Form, and a completed I-9 form. To ensure that you do everything correctly, it’s important to keep track of your paystubs.
Why is the Nanny Tax Actually Good for You?
Making sure that your employer pays the nanny tax and withholds money from your paycheck is beneficial to you. First, it helps you build a credible work history. If your employer doesn’t pay the nanny tax, then you can’t list your nanny job on your work history for important things like car or home mortgage loans. You also won’t be able to receive any unemployment benefits if you leave your nanny job and can no longer find work. Additionally, paying social security and Medicare taxes now ensures that you’ll have these benefits when you’re older.
What Happens If You Are Paid “Under the Table” by Your Employer?
If you don’t have your employer pay and take out the nanny tax, it can be bad for you and the employer. It means you will not be eligible for important government benefits, but it also means that if you even tried to get benefits or applied for something and listed your nanny work as work history, the IRS can easily find out that taxes were never paid, which could mean tax evasion fees, back tax penalty fees, and professional license loss for the employer.
