How to Correctly File Your Taxes as a Nanny

Nannies have unique tax rules because the Internal Revenue Service (IRS) classifies them as household employees, distinct from other workers. Understanding these regulations is crucial for compliance and managing financial obligations, ensuring accurate tax return preparation.

Defining the Nanny’s Tax Status

Nanny tax obligations begin with correctly identifying employment status. The IRS distinguishes between a household employee and an independent contractor, which dictates how taxes are paid and reported. Most nannies are household employees because their employer controls the work, how it is done, and provides resources, such as specific duties and work hours. This employer control solidifies their employee status.

An independent contractor controls their own work, sets hours, and provides their own tools, often serving multiple clients without direct control from any single one. Nannies rarely meet these criteria, as their work is usually integrated into a household’s routine and directed by parents.

The IRS determines worker status based on behavioral control, financial control, and the type of relationship. Behavioral control assesses if the employer directs how the work is done. Financial control covers payment, expense reimbursement, and who provides tools.

The type of relationship considers contracts, benefits, and permanency. Misclassifying a household employee as an independent contractor can lead to penalties for the employer and complications for the nanny. Both parties must accurately assess the relationship for proper tax treatment.

Key Tax Obligations and Required Forms

As a household employee, nannies and their employers are subject to specific taxes. These include Social Security, Medicare (collectively FICA), Federal Income Tax (FIT), and Federal Unemployment Tax (FUTA). FICA taxes fund Social Security and Medicare benefits, with both employer and employee generally contributing equal shares.

The employer typically withholds the employee’s FICA portion from wages and remits both the withheld share and their matching share to the IRS.

Federal Income Tax is withheld from the nanny’s pay based on Form W-4, Employee’s Withholding Certificate. This form allows the nanny to indicate filing status, dependents, and additional withholding amounts to cover tax liability. Proper W-4 completion helps prevent under-withholding.

The employer is solely responsible for Federal Unemployment Tax (FUTA), which funds unemployment benefits and is not withheld from nanny wages.

Key tax forms facilitate reporting and payment. Form W-2, Wage and Tax Statement, is issued by the employer to the nanny by January 31st of the following year.

Employers use Schedule H, Household Employment Taxes, to report and pay their share of Social Security, Medicare, and FUTA taxes, filed with their Form 1040, U.S. Individual Income Tax Return. The nanny uses their Form W-2 to prepare their own Form 1040.

Employer’s Role in Nanny Tax Compliance

The employer plays a direct role in nanny tax compliance, impacting the nanny’s ability to file correctly. A primary responsibility is obtaining an Employer Identification Number (EIN) from the IRS. This nine-digit number is required for reporting employment taxes and serves as the employer’s tax ID on all related forms.

Employers must withhold Social Security and Medicare taxes from nanny wages once cash wages reach a threshold. For 2024, this is $2,700. Once met, the employer must begin withholding the employee’s share of FICA taxes from each paycheck.

Beyond withholding, the employer must pay their matching share of Social Security and Medicare taxes, an additional 7.65% of the nanny’s wages. These contributions are in addition to amounts withheld from pay and must be remitted to the IRS timely, often via estimated tax payments.

The employer also pays Federal Unemployment Tax (FUTA), calculated on the first $7,000 of wages per employee annually. This tax applies if cash wages of $1,000 or more are paid in any calendar quarter, or if an employee works some part of a day in 20 or more different weeks. FUTA is paid entirely by the employer and not deducted from nanny wages.

A critical employer responsibility is issuing Form W-2 to the nanny by January 31st of the following year. The W-2 summarizes the nanny’s annual earnings and total taxes withheld, providing necessary documentation for their tax return.

Employers file Schedule H with their Form 1040. This schedule reports Social Security, Medicare, and FUTA taxes owed for household employees, consolidating tax obligations. Timely completion ensures the nanny receives necessary documentation to accurately prepare their personal tax return.

Completing Your Tax Return as a Nanny

Once you receive Form W-2 from your employer, you have the essential document for your personal income tax return, Form 1040. Your W-2 details total wages earned and withheld federal income, Social Security, and Medicare taxes. This information transfers directly to specific lines on your Form 1040 to report income and payments.

Your gross wages from Box 1 of Form W-2 are entered on line 1a of Form 1040. Federal income tax withheld, from Box 2 of your W-2, is reported on line 25b of Form 1040, contributing to your total tax payments. Social Security and Medicare taxes withheld are for informational purposes on your W-2, confirming employer remittance.

If your employer did not withhold enough federal income tax, or if you had other income, you might owe additional tax. An underpayment penalty may apply if the amount owed is substantial, typically $1,000 or more. To avoid this, make estimated tax payments quarterly using Form 1040-ES, Estimated Tax for Individuals.

If an employer fails to provide a Form W-2, you must still report your income. First, contact your employer to request the W-2. If unsuccessful, file Form 4852, Substitute for Form W-2, Wage and Tax Statement, to estimate wages and withheld taxes using pay stubs, bank statements, or other reliable records.

If you have no records, report your income on Form 1040 as “other income” on Schedule 1, indicating it as unreported wages. This may prompt IRS inquiry into the employer’s compliance. You may also be eligible for deductions like the standard deduction or credits such as the Child Tax Credit, depending on your circumstances.

After completing Form 1040, submit your tax return electronically through IRS e-file or by mail. E-filing processes refunds faster and provides immediate confirmation. If you owe taxes, pay directly from your bank account via e-file, by mail with a check, or through other approved electronic options by the tax deadline, typically April 15th.