Can a Nanny Be a 1099 Independent Contractor?

The question of whether a nanny can be classified as a 1099 independent contractor is common, yet often misunderstood. Correctly classifying workers, particularly in household employment, is important for both employers and those providing services. Understanding worker classification is important to ensure compliance with tax laws and to avoid potential issues.

Understanding Worker Classification

The Internal Revenue Service (IRS) uses specific criteria to determine if a worker is an employee or an independent contractor. This determination relies on common-law rules, which examine the relationship between the worker and the business. These rules focus on three primary categories: behavioral control, financial control, and the type of relationship.

Behavioral control relates to whether the business has the right to direct or control the work performed and how it is done. This includes instructions about when and where to work, what tools or equipment to use, and what assistants to hire or purchase supplies from. Financial control involves the business aspects of the worker’s job, such as how the worker is paid, whether expenses are reimbursed, and who provides tools or supplies. The type of relationship considers factors like the existence of written contracts, whether employee benefits are provided, and the permanency of the relationship.

For instance, if a business provides detailed instructions on completing tasks, controls the worker’s schedule, and supplies the necessary equipment, these factors suggest behavioral control. If the business reimburses expenses, pays a regular wage, and does not allow the worker to seek other clients, this points to financial control. When the relationship is ongoing and includes benefits like insurance or paid time off, it indicates an employer-employee relationship.

Why Nannies Are Generally Employees

Applying the IRS common-law rules, nannies almost always fall into the employee category rather than that of an independent contractor. Families who hire nannies typically exercise a high degree of behavioral control over the nanny’s work. For example, parents generally dictate the nanny’s schedule, specify the duties to be performed, and often instruct on how childcare tasks should be executed. This level of direction over the details of the work performed signals an employer-employee dynamic.

Furthermore, aspects of financial control also align nannies with employee status. The family usually provides the work environment, including the home and necessary supplies for childcare. The nanny is typically paid a regular wage, and the family does not generally expect the nanny to incur significant unreimbursed business expenses or offer their services to multiple families simultaneously. The relationship between a family and a nanny is often continuous and long-term, rather than being project-based or temporary. This ongoing nature, coupled with the family’s right to control the work and its financial aspects, solidifies the classification of a nanny as a household employee.

Implications of Misclassification

Misclassifying a nanny as an independent contractor (1099) when they should be an employee (W-2) carries legal and financial repercussions for the employer. The IRS and state labor departments actively pursue cases of worker misclassification. Such misclassification can result in demands for unpaid employment taxes, including Social Security, Medicare (FICA), and Federal Unemployment Tax Act (FUTA).

Employers may be liable for both the employer and employee shares of FICA taxes, along with penalties and interest on these unpaid amounts. Additionally, misclassification can lead to state-level penalties related to unemployment insurance and workers’ compensation, as well as legal fees if the matter proceeds to audit or litigation. An employer could also face demands for back wages or benefits that would have been due had the worker been correctly classified. These financial liabilities can accumulate quickly, making correct classification important for household employment.

Employer Responsibilities for Nanny Employment

Once a nanny is correctly classified as an employee, the family takes on specific employer responsibilities to ensure compliance with federal and state tax laws. A foundational step for any household employer is to obtain an Employer Identification Number (EIN) from the IRS. This unique nine-digit number is required for tax filings and can be obtained online through the IRS website by completing Form SS-4.

Employers are responsible for federal payroll tax obligations, which include Social Security and Medicare (FICA) and Federal Unemployment Tax Act (FUTA). For 2025, if cash wages to a household employee reach $2,800 or more, Social Security and Medicare taxes become mandatory. The employer and employee each contribute 7.65% of the nanny’s wages for FICA taxes, totaling 15.3%, with the employer typically withholding the employee’s share.

Employers also pay FUTA tax, which is 6.0% on the first $7,000 of cash wages paid to each employee, though this rate is often reduced to 0.6% due to state unemployment tax credits. FUTA tax is an employer-only tax, meaning it is not withheld from the employee’s wages.

At the end of the year, the employer must provide the nanny with a Form W-2, reporting their annual wages and withheld taxes. Additionally, household employers are required to file Schedule H with their annual federal income tax return (Form 1040) if they meet the wage thresholds for FICA or FUTA. State-specific requirements, such as state unemployment insurance and workers’ compensation, also apply and vary by jurisdiction.