You found the nanny of your dreams. What else should you be thinking about? Nanny taxes! Paying your nanny legally gives you the benefit of knowing your employee is receiving fair and legal wages, has an employment paper trail that will allow him or her to purchase a car or home, and will be able to collect Social Security when they are older.
What are nanny taxes? Nanny taxes are employment taxes (Social Security and Medicare, state and federal income taxes, and state and federal unemployment taxes) owed to the government when you have someone working in your home. Some of the taxes are paid by the employee through deductions from pay and others are a cost to the employer.
While many families think they can “fly under the radar”, they don’t need to be audited by the IRS for the government to find that they aren’t paying their nanny taxes. For example, if the employee files a claim for unemployment or Social Security benefits and there is no record of employment, that flags you as an employer who hasn’t paid their nanny taxes.
Not just for nannies: Commonly called “nanny” taxes, these taxes are NOT just for nannies! The government considers you an employer when you hire someone to work in your home, whether a babysitter, home health aide, housekeeper, etc.
Hiring your employee: Be sure your employee can legally work in the US. Both you and the employee need to complete and sign the I-9 form to verify identity and eligibility to work.
Paying your employee: You may have heard that household workers can be categorized as “independent contractors” but misclassifying a household employee as an independent contractor can lead to a charge of tax evasion. Household employees also need to be paid at least minimum wage and receive time and a half if they work over 40 hours in a week.
Employing a nanny in Chicago: If you live in Chicago there are additional laws related to employing a nanny or caregiver. Effective 2022 Chicago employers need to provide their nanny with a written work contract spelling out responsibilities of the employee and the employer. The Chicago minimum wage for household workers is $15.40 effective July 1 and Chicago workers are eligible to accrue paid sick leave up to 40 hours per year and can use this leave after working 180 days.
While the complex requirements of nanny taxes can sound a little confusing (and scary!), there is help available. Start by reading IRS Publication 926 for federal nanny tax requirements and you can find information about the I-9 form at the US Citizenship and Immigration Services website. Then check out the Illinois Department of Employment Security (IDES) and the Illinois Department of Revenue websites for information about Illinois filing requirements. The City of Chicago website has sample work contracts and additional information about hiring household employees and, finally, review the Social Security Administration Business Services website for information about filing the employee’s W-2 form each year.
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Established in 1995, The Nanny Tax Company is a small, woman-owned, family run business. Their mission is to provide a simple, cost effective service that makes it easy for families to pay their nanny taxes. The Nanny Tax Company can be reached at (847) 696-7260 or https://www.nannytaxprep.com
