Nanny Taxes: W2s or 1099? How To Know Which Tax Form To Use

It’s that time of year again! Time to figure out how to file for your nanny taxes. 

Tax season tends to be a stressful time of the year for many, and it’s easy to understand why. From the many forms to choose from, write-offs and expenses to organize, child tax credits to calculate, and more, feeling overwhelmed is pretty natural in the early stages of tax preparation.

To make it even more complicated, many parents have nanny taxes to consider. “Wait,” you might be thinking, “I have to think about taxes for my nanny?!” Technically, yes you do! Your nanny or babysitter is your employee, and it is your job to claim that helpful employee on your taxes and send them the proper form they need. So how does it all work?

Nanny taxes are not as scary as they seem! It’s actually a very straightforward process, that also ends up saving you a little cash on your tax payments. There are a couple of options that you can choose from, depending on your and your nanny’s needs. 

Let’s break these options down and see what will be the best option for your family.

Is Your Nanny a Household Employee?

Guidelines provided by the IRS clearly define what makes your nanny a household employee. To sum it all up, if you are in charge of dictating the work that this employee does, then they are a household employee. This means that no other organization or business defines the scope of work for the employee, just your household. Thus, your nanny is not a household employee if their scope of work is defined by an organization or business outside of your home. In this case, they would be an independent contractor.

So those are your options: either you control and dictate all of your employee’s work, or their work is clearly defined and outlined by an outside organization. When it comes to nanny taxes, articulating the difference is important.

If you decided that your nanny is your employee, you don’t have to pay nanny taxes if they are one of the following: your spouse, a minor under the age of 18 who is a full-time student, or your child (under the age of 21). You also do not need to pay nanny taxes if your nanny is your parent, although there is one two-part exception to this rule. If your parent must provide care for four consecutive weeks or more for a minor (or a dependent over 18 with disabilities that require full-time care) and your spouse cannot assist with childcare over those same weeks, then your parent becomes a household employee.

If your nanny brings their own supplies, works for multiple families, or has their scope of work defined by themself or an outside organization, your nanny may be an independent contractor. But just because your nanny COULD be classified as an independent contractor in some situations doesn’t mean you HAVE to classify them that way. Classifying a worker as an employee is always allowed (though the reverse is definitely not true).

What Nanny Taxes Are You Responsible For

Once you decide the status of your nanny, you can decide what nanny taxes you may be responsible for. Let’s take a closer look at some options.

The first and most crucial of these taxes include Social Security and Medicare, or FICA taxes. You are legally required to withhold FICA taxes if you paid your nanny $2300 or more last year. For 2021 taxes, you and your nanny must each pay 6.2% of paid wages to Social Security and 1.45% to Medicare—for a total of 7.65% each, and 15.3% total.

Only wages paid in cash are subject to FICA taxes. Goods like food and clothing cannot be taxed.

You are not responsible for income tax withholding unless your nanny requests it. That is an agreement that the two of you can come to, and you will have to report and send those income taxes to the IRS on your employee’s behalf.

When it comes to federal unemployment tax, that responsibility falls to you, and only if you pay your employee less than $7,000 a year. This payment is an additional 6% of what you paid your employee for the year.

Nanny Taxes: W2s or 1099 Forms?

First, it is your responsibility to ensure that your employee can work legally in the US. This means they need to fill out Form I-9. You must have this form completed and in hand before your nanny’s first day of work.

If you have decided that your nanny is a household employee, you will begin the W-2 tax form. You will need to fill out this form by February 1st, and give your nanny copies B, C, and 2. You will also need to send copy A of the W2 form to the Social Security Administration, along with a W-3 which acts as a transmittal letter. You can find additional info on this process on the Social Security website.

Then, you’ll need to file a Schedule H (Household Employment Taxes) along with your usual tax returns by April 15th. Don’t forget to check your state tax obligations as well! These will vary depending on the state you live in, so be sure to check in on their requirements for household employees.

For independent contractors, you’ll just need to send a 1099 form with the employee’s name, social security number, and total earned wages for the year. The rest is up to them. Keep in mind that in order to avoid any tax penalties, your nanny must fall under independent contractor guidelines.

Simplify Nanny Taxes With Call Emmy

Tax season often feels like just another headache to add to your long to-do list. But with this simple breakdown, you can take on this task with confidence. Nanny taxes don’t need to be a big scary project, as long as you are correctly informed and manage your deadlines.

If you are interested in simplifying nanny taxes more, remember to turn to Call Emmy for support.

Call Emmy provides on-demand childcare services, such as nannies and babysitters. All nannies on the platform are rigorously vetted, which saves you that work on the hiring side. And then when it comes tax time, your independently-contracted nanny will save you headaches! Access a full backlog of services rendered throughout the year in the Call Emmy app. What are you waiting for? Sign up for Call Emmy today.