Do I have to pay taxes if I have Nanny?

Hiring a nanny can have a positive impact on your life, but you also need to keep in mind that it will have an impact on your finances, as well. You will be expected to pay a mix of taxes on top of the salary you pay them. This is referred to as the “nanny tax”. If you choose to neglect this, it can lead to substantial IRS penalties.

What are Nanny Taxes?

The “nanny tax” is the sum of taxes that you withhold from your employee (the nanny) and the taxes that you pay as an employer. Typically, you will withhold Social Security and Medicare (known as FICA) from their paycheck each pay period. You will also be paying the matching portion (the employer’s portion) of FICA.

According to the IRS, you are not required to withhold federal income tax from the nanny’s wages. You should only do so if the employee requests withholding and provides you with a completed Form W-4.

Note: Each state is different as to how they handle income taxes. Some do not have any income tax, while others require additional taxes to be withheld, paid by the employer, or both. You will need to check with your state for their requirements.

What Will You Need to Pay Nanny Taxes?

EIN (Employer Identification Number)
Payroll Information – Gross to Net Pay
Annual Forms – W-2, W-3, & Schedule H to be filed with your personal tax return
Federal & State Quarterly Filings
Now you have an overall look at the tax consequences & requirements of hiring a nanny. If you are considering hiring a nanny and need assistance getting on the right track with nanny taxes, we are here to help. Give our payroll department a call!