How to Do Your Taxes When You Are a Nanny

Navigating tax obligations can be complex, and nannies face unique considerations. This guide clarifies the necessary steps and forms for fulfilling your tax duties as a nanny, addressing how your employment status influences your obligations and outlining the process for preparing and submitting documents.

Understanding Your Nanny Employment Status

The IRS determines a nanny’s employment status, classifying them as either an “employee” or an “independent contractor.” This distinction impacts who is responsible for withholding and paying payroll taxes.

An individual is an employee if the person or family who hired them controls what work is done and how it is done, including the work schedule, specific tasks, and methods. Conversely, if a nanny controls how the work is done, provides their own tools, and offers services to the general public, they are considered self-employed. The IRS considers factors like behavioral control (who directs the work), financial control (who manages business aspects), and the nature of the relationship.

For tax purposes, if a family pays a nanny cash wages of $2,700 or more in 2024, that nanny is considered a household employee, and the employer is responsible for certain payroll taxes. This threshold is subject to annual review and adjustment by the IRS.

The classification dictates the type of tax form you will receive. Employees receive Form W-2, Wage and Tax Statement, summarizing annual wages and taxes withheld. Independent contractors may receive Form 1099-NEC, Nonemployee Compensation, from any client who paid $600 or more, reporting self-employment income.

Tax Responsibilities When Classified as an Employee

When classified as an employee, your tax responsibilities are similar to traditional employment. Your employer handles the withholding of federal income tax, Social Security tax, and Medicare tax from your paychecks, remitting these amounts to the IRS on your behalf.

Your Form W-2, provided by your employer by January 31st of the following year, details your total wages and withheld taxes. Box 1 shows total taxable wages, while Boxes 2, 4, and 6 show federal income tax, Social Security tax, and Medicare tax withheld. This information is used to complete your individual income tax return, Form 1040.

Amounts withheld from your pay are applied against your total tax liability. If more tax was withheld than owed, you may receive a refund; if less, you may owe additional taxes. You can reduce taxable income by claiming the standard deduction, which for single filers in 2024 is $14,600. Tax credits may also be available to reduce your tax liability directly.

Tax Responsibilities When Classified as Self-Employed

If you are an independent contractor or self-employed, you are responsible for paying both income tax and self-employment taxes. Self-employment tax covers your contributions to Social Security and Medicare, which an employee and employer would split. For 2024, the self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare). The Social Security portion applies to net earnings up to $168,600 for 2024, while the Medicare portion applies to all net earnings.

You report income and deductible business expenses on Schedule C, Profit or Loss from Business, when filing Form 1040. Net earnings from self-employment are calculated by subtracting business expenses from gross income. Common deductible expenses for nannies include:

Transportation costs for work-related errands, such as mileage at the IRS rate of 67 cents per mile for 2024, or actual gas and maintenance costs.
Supplies purchased for the children.
Professional development courses like CPR certification.
Advertising costs.
Health insurance premiums if self-employed.

You can also deduct one-half of your self-employment tax in figuring your adjusted gross income.

Self-employed individuals must pay estimated taxes throughout the year using Form 1040-ES, Estimated Tax for Individuals. This is because taxes are not withheld from your income. Estimated taxes are paid in four quarterly installments: April 15, June 15, September 15, and January 15 of the following year. You must make estimated tax payments if you expect to owe at least $1,000 in tax for the year. Failing to pay enough estimated tax can result in penalties.

Completing and Submitting Your Nanny Tax Forms

After gathering income and expense information, and completing schedules like Schedule C and Schedule SE, consolidate this data onto your main income tax return, Form 1040. Totals from these schedules and any W-2 forms flow directly to Form 1040, calculating your total income, deductions, credits, and ultimately, your tax liability or refund.

Several methods exist for submitting your completed tax return to the IRS. Electronic filing (e-filing) is the most common and fastest way. You can e-file using commercial tax software, through the IRS Free File program if you meet income requirements, or with a tax professional. E-filing provides immediate confirmation that your return has been accepted. Alternatively, you can print and mail paper forms to the correct IRS address for your region.

If you owe taxes, various payment options are available. You can pay online directly from your bank account using IRS Direct Pay, or through electronic funds withdrawal when e-filing. Other options include paying by debit or credit card through an approved processor, or by check or money order mailed with Form 1040-V, Payment Voucher. For estimated tax payments, similar online methods are available, or you can mail a check with the appropriate Form 1040-ES payment voucher for each quarter.

After submission, keep copies of all tax documents and supporting records for at least three years. The IRS processes e-filed refunds within 21 days, while paper returns take several weeks longer.