Guest post from Nanny Parent Connection member Becki Brack who is a Partner and Certified Public Accountant at Growing Numbers Accounting and Bookkeeping. Thanks Becki for compiling this list of frequently asked nanny pay questions. You’re the best!

nanny pay questions
#1: Is a nanny or babysitter an employee?

According to the IRS, yes, a person is an employee if you are telling them what they will do and how they will do it.  It doesn’t matter whether the work is full time or part time, or whether you pay the worker on an hourly, daily, or weekly basis, or by the job. Since nannies or babysitters are told what to do with the children and how to do it (parenting styles, schedules, etc.), a child care worker is considered an employee as opposed to an independent contractor. That distinction is the difference between providing a W-2 or Form 1099 at year end and changes who is responsible for the employment taxes.

The IRS Publication 926 – Household Employers Tax Guide, provides examples of who a household employee is which includes babysitters, domestic workers and nannies.

#2:  Do I owe my nanny overtime or can I pay a nanny a salary (fixed amount) per day/week/month?

Household employees are legally entitled to overtime pay as they are subject to the Fair Labor Standards Act (FLSA). The FLSA requires “domestic service” workers be protected by overtime laws. The requirements for Washington household employers are as follows:

  • The standard workweek is defined as 40 hours in a seven day period.
  • Washington employees should be paid at least time-and-a-half their regular hourly rate for all hours worked over 40 in a workweek.
  • Overtime compensation is not required for live-in employees.
  • Overtime is not required to be paid when work is performed on a holiday.
#3: What are “nanny taxes” and when do I owe them (is there a threshold)?

The “nanny tax” is comprised of a combination of federal and state taxes that typically include:

  • Social Security & Medicare taxes (FICA), as well as federal & state income taxes withheld from the employee (note: Washington state does not have an income tax)
  • Federal & state unemployment insurance taxes paid by the employer

These taxes come into play when a family pays a nanny – or any household employee – $2,000 or more in a calendar year. In 2018, the wage threshold will increase to $2,100. If the employer fails to withhold these taxes from the employee, the employer is liable for these taxes.

#4: What about nanny shares: is the nanny an employee of both families?

In short, yes.  Both families direct the nanny in what to do and how to do it.

Technically, the IRS publication states: “A worker who performs child care services for you in his or her home generally isn’t your employee.” You will notice most laws are silent regarding nanny shares. The IRS Household Employer publication does not speak to whether a child care service performed in another family’s home (not the child care worker’s home) is an employee or not.

To read more about the legality of nanny shares, check out this blog post.

#5: What if my nanny says they do not want taxes withheld?

You are not required to withhold federal income tax from wages you pay a household employee.

You are required to withhold federal and state unemployment taxes (FUTA and SUTA) and FICA taxes (Social Security and Medicare).  See IRS Publication 15 for FICA tax rates. If the nanny and/or family is interested in this option, the family can pay the employee portion of FICA taxes for the nanny, rather than withholding the funds from the nanny’s gross wages.

Your Washington State unemployment tax rate will be mailed to you after you apply for a business license, but general information can be found on the Employment Security Department website: https://esd.wa.gov/employer-taxes/determining-your-tax-rates.

#6: How does a nanny share work regarding paying the nanny and employment taxes?

The simplest way to handle paying your nanny in nanny share is for each family to pay every other paycheck (assuming hours are generally consistent each pay period). That way by the end of a quarter and end of the year, you have roughly shared the cost 50/50 of your nanny. Each family would report and remit the taxes related to the paychecks they paid.

A common carry-on question to this is whether each family has to pay the nanny minimum wage per their state or local laws. There is no specific law or IRS regulation that specifically calls out an arrangement such as a nanny share where two employers/entities are sharing one employee.

However, this is also why we would suggest having each family pay the nanny every other paycheck. Then each family is reporting the nanny’s hours at full wage (which should be minimum wage or more) as opposed to splitting the paycheck each pay period which would likely result in each family paying less than minimum wage.

For instance, Seattle minimum wage is $11 per hour in 2017. If the nanny is paid $20 per hour for a nanny share, should the families split each nanny paycheck, the family would be reporting 50% of the hours at $10 per hour (less than minimum wage).

#7: How do I calculate Federal income tax withholding and what do I do after I withhold it?

You should have you your nanny complete an IRS Form W-4. This provides written agreement for you as the employer to withhold federal income tax from his/her paycheck (or for them to elect no withholding). You should use the income tax withholding tables in Publication 15 to find out how much to withhold, and always calculate federal income tax withholding on gross wages (prior to deducting other taxes).

If you agree to withhold federal income tax, you’re responsible for paying it to the IRS. There are two ways to submit the tax to the IRS:

  1. If you plan to file a Schedule H with your 1040 (individual Federal income tax return), you will want to make estimated tax payments throughout the year on Form 1040-ES.
  2. You can remit taxes for your nanny on business tax Forms 941 (FICA) and 940 (FUTA). If you choose this way, you will not need to file a Schedule H with your individual income tax return.
#8: What information does my nanny need to provide to me as the employer?
  • A Social Security number;
  • A completed Form I-9 with identification as defined in the form; and,
  • A completed federal W-4 form.
#9: What information do I need to provide to my nanny and what reports/forms do I need to provide?

First, you must apply for an Employer Identification Number (EIN). An EIN is a nine-digit number issued by the IRS. It isn’t the same as a social security number (SSN).  If you don’t have an EIN, you can apply online: go to IRS.gov and enter “EIN” in the search box, or apply for an EIN by mailing Form SS-4 to the IRS.

  • Form W-2. Give Copies B, C to your employee by January 31, 2018. Send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the Social Security Administration (SSA) by January 31, 2018.
  • File Schedule H or IRS Form 941 and 940.  These forms allow you to report and pay your nanny’s employment taxes. Either way is specified in IRS Publication 926 as an acceptable method for reporting and paying household employer taxes.
    • File schedule H with your 1040 income tax return by mid-April.
    • File Form 941 quarterly during the year. Form 940 is due by January 31, 2018 (but a deposit is required once the FUTA liability exceeds $500).
  • Keep records of the paystubs, including records to support the information you enter on the forms you file (hours, federal tax withholding calculations).
  • If you must file Form W-2, you will need to keep a record of your employee’s name, address, and SSN. If you’re not required to file a Form W-2 (employee earned less than $2,000), it is a good idea to provide your household employee with a statement of their services, including dates worked and wages paid.

Keep your employment tax records for at least four years after the due date of the return on which you report the taxes or the date the taxes were paid, whichever is later.

#10: What benefits, if any, are household employers required to provide their nanny, baby sitter, etc?

Sick Leave. All employees covered by the Washington minimum wage law (RCW 49.46) are covered under the Washington Sick Leave Law.  General provisions include all employers must provide 1 hour of sick time per 40 hours worked, at least 40 hours must be allowed to be carried over year-over-year, and employees are entitled to use sick time upon completion of 90 days of employment. More specific rules about the law can be found on the Labor and Industries website: http://www.lni.wa.gov/WorkplaceRights/Wages/Minimum/1443.asp.

It is important to note that the employer needs to be compliant with both city and state laws. If there is a city law related to paid sick time for employees and the city law is more stringent than the state law, you must comply with the more stringent requirements when/if the state and city law differ.

Health Insurance. There is no requirement that household employers provide health care insurance or even premium support for their household workers.  In accordance with the Affordable Healthcare Act, any employer with fewer than 50 full-time employees is not required to provide health insurance coverage to their staff.

Have more questions about working with a nanny? Access the most EXTENSIVE childcare library for only $8.99/month.  Click here to sign up!

Please note: This material has been prepared for informational purposes only over the internet, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for any individual, family, or specific entity. The information contained in this post is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved, and tax rules and laws are subject to change at any time. Before engaging in any transaction, you should consult a tax, legal and/or accounting adviser in a direct client-adviser capacity.

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