Navigating Nanny Taxes
The obvious first question would be “Do I need to pay nanny taxes?” In most circumstances for parents who regularly pay for in-home childcare the answer is yes. If you pay your nanny/babysitter more than $2,000 per year (or $1,000 per quarter) in wages you are required to pay taxes. So what’s next? Here are the 3 things you must do in order to be in compliance with federal and California tax obligations.
Register as an employer with the IRS and the California Employment Development Department. You will receive an Employer Identification Number (EIN) which you will use to fill out tax forms and file your tax return.
Once you are registered with the state you must report your nanny within 20 days of hiring.
Set up payroll. Whether using a third party or DIY you must withhold Social Security, Medicare and SDI. Income taxes can be withheld according to you and your nanny’s agreement. A third party company will most likely handle all quarterly filings and provide your nanny with a W-2 at the end of the year.
These 3 steps can seem like a lot to the average Joe which is why payroll companies are now tailoring their services to household employers. For a monthly fee all you have to do is provide your information and the rest is handled, including direct deposits, overtime calculations and vacation/sick pay. But for the brave the IRS and California EDD provide resources to help you walk through the process.