Paying your nannies legally
Finding a trustworthy nanny to look after your children is a huge duty for every parent. Making ensuring your nanny is being paid within the law is an essential part of employing one. This includes getting a Federal Employer Identification Number (EIN), withholding taxes, issuing a W-2 form at year's end, and filing and paying taxes in accordance with all applicable local, state, and federal regulations.
We must first decide if the nanny is an employee or a contractor. If a parent or employer has the right to control the nanny's work, including when and where it is done and how it is done. However, to save you some time on this. The IRS considers the nanny to be an employee. The responsibility for withholding and paying taxes, such as Social Security and Medicare taxes, often known as FICA taxes, falls on the parent or employer if the nanny has been deemed an employee.
It is easy to use a household payroll service to accomplish this, but if you want to do this yourself, keep reading for more steps.
If you plan to have a nanny work for you, you must apply for a federal employer identification number (EIN). For tax purposes, it is necessary to have the IRS-issued employer identification number. An EIN application can be submitted either electronically or by regular mail.
The next step is to create a payroll system to monitor the nanny's time and compensation. This entails determining both the employee's gross pay, which is their annualized salary ( be mindful that in many states, nannies are hourly workers) before withholdings, and their net pay, which is their salary after withholdings and any other deductions have been made. To fulfill your responsibilities as an employer, you must deduct federal and state income taxes, as well as FICA, from the nanny's salary.
At the end of the year, make sure the nanny receives a W-2 form for their wages. The nanny's annualized salary and the tax amount withheld are detailed in this document. Likewise, the nanny's Medicare and Social Security payments are reflected.
As an employer, you must also file and pay taxes on time. This involves reporting the nanny's earnings and taxes withheld on a quarterly federal tax return, Form 941. You must file a state tax return detailing the nanny's earnings and the state taxes withheld from those earnings.
It is recommended that you contact your state's labor department for information on your area's unique nanny tax regulations and requirements.
Getting a Federal Employer Identification Number (EIN), withholding taxes, providing a W-2 form at the end of the year, and submitting and paying taxes on time are all essential components of paying your nanny lawfully. Keep in mind that as an employer, you must withhold and remit taxes, such as FICA (Federal Insurance Contributions Act) taxes and Social Security and Medicare taxes. Penalties and fines can be assessed for those who do not pay their taxes in accordance with the law. There is a chance that the nanny's Social Security and Medicare payments will not be credited to her. Always err on the side of caution and legality to avoid trouble.
Have any more questions? We are happy to recommend some of the leading household payroll companies.