Wondering whether or not you should give your in-home/live-in Nanny a 1099 or W-2? The answer depends on whether or not the individual in question is self-employed or a household employee.
The simple answer is, if you control how the work is performed, the nanny is a household employee. In most cases a Nanny providing regular services in your home would be an employee. BUT, if the Nanny controls how the work is performed, or if an agency provides the Nanny, and controls what work is done and how it is done, then she (or he) generally would not be your employee.
If the Nanny is your employee, you generally must provide a Form W-2 if you paid the employee at least $2,700 during the tax year 2024.
Risks of paying someone “under the table!”
Tempted to simply pay household employees “under the table” to save time and stress? Don’t. Keep in mind that once you no longer need your nanny or household employee and let them go, they may file for unemployment benefits, and have to submit a list of prior employers. If your name is listed and the State unemployment office is unable to find any tax returns that you’ve filed you may be facing audits from the federal and State government and other possible penalties as well.
What needs to be considered?
Social Security tax and Medicare tax, commonly referred to as FICA tax, applies to both employees and employers, each paying 7.65% of wages: 6.2% for Social Security tax and 1.45% for Medicare tax. You are not required to withhold federal income tax from wages you pay to a household employee.
However, if your employee asks you to withhold federal income tax and you agree, you’ll need a completed Form W-4, Employee’s Withholding Certificate from your employee. See Publication 15-T, Federal Income Tax Withholding Methods for tax withholding tables that are updated each year.
Form W-2, Wage and Tax Statement
If you must withhold and pay Social Security and Medicare taxes, or if you withhold federal income tax, you’ll need to complete Form W-2, Wage and Tax Statement for each employee. You’ll also need a Form W-3, Transmittal of Wage and Tax Statement. To complete Form W-2, you’ll need an employer identification number (EIN) and your employee’s Social Security numbers. If you don’t already have an EIN, you can apply for one using the online EIN application.
Federal Unemployment Tax Act (FUTA)
If you paid cash wages to household employees totaling more than $1,000 in any calendar quarter during the calendar year or the prior year, you generally must pay federal unemployment tax (FUTA) tax on only the first $7,000 of cash wages you pay to each household employee. Don’t withhold the FUTA tax from your employee’s wages, pay it from your own funds. The FUTA tax is 6% of your employee’s FUTA wages. You may be able to take a credit of up to 5.4% against your FUTA tax liability for amounts you paid into state unemployment funds, resulting in a net tax rate of 0.6%.
If you pay wages subject to FICA tax, FUTA tax, or if you withhold federal income tax from your employee’s wages, you’ll need to file a Schedule H (Form 1040), Household Employment Taxes. Attach Schedule H to your individual income tax return.
Read our prior article here, most of these rules apply to private duty, live in caregivers for senior loved ones as well.
More info: Household Employer’s Tax Guide at Publication 926, Household Employer’s Tax Guide
Contact us: Confused? Don’t be, help is just an email or phone call away. Don’t be tempted to pay “under the table.” Penalties can be steep for non-compliance. Contact your TFG Accounting and Tax CPA for help, or contact Victoria Jackson at Your Payroll Solutions, a TFG Related Entity. She can be reached at vjackson@yourpayrollsolutions.net or 561-209-1108.
