How to Pay a Nanny Legally: A Step-by-Step Guide
Published:
Alicia GaribaldiKey Takeaways
You've done the hard part—finding the nanny who clicks with your family. Now comes the fun part (yes, really!): setting up everything to make it official. Think of it as rolling out the red carpet for your newest family helper. We'll walk you through the steps to handle nanny payments and paperwork like a pro, keeping everyone happy and protected.
This guide breaks down each step to help you confidently navigate contracts, taxes, and payroll.
Here are the nine required steps to pay a nanny legally:
1. Create a Clear Nanny Contract
2. Classify Your Nanny as an Employee
3. Obtain an Employer Identification Number (EIN)
4. Register for State Tax Accounts
5. Complete New Hire Reporting
6. Set Up Payroll
7. Obtain Workers’ Compensation Insurance
8. Understand How to Pay Nanny Taxes—Calculating and Withholding Taxes
9. Provide Pay Stubs and Maintain Records
But First, [TOC]Why Paying a Nanny Legally is Worth It
Paying your nanny legally is a win-win for everyone involved. Here’s why:
| The Benefits of Legal Nanny Payments |
|
|
|
|
|
|
With that out of the way, let's walk through the nine simple steps to pay your nanny on the books. These steps will help you build a strong foundation with your nanny, ensuring they have everything they need to focus on what they do best—caring for your little ones.
[TOC]Step 1: Create a Nanny Contract
Parenting moves at the speed of light, and details can be a blur in the daily rush! That's why setting up legal payments and a clear contract with your nanny at the start is essential. Not only does it keep you compliant with tax laws, but it also protects the amazing person caring for your kids. Moreover, certain states, like California, Massachusetts, and New York, mandate a written pay notice to nannies. Poppins Sample Nanny Contract makes things even more effortless by outlining responsibilities and payment terms upfront—keeping everyone on the same page even when memories get fuzzy.
[TOC]Step 2: Classify Your Nanny As an Employee
According to the IRS, nannies are household employees, not independent contractors. It turns out that this is a common mistake that families make! This step is critical to ensuring taxes are filed promptly and fairly for your nanny, which brings us to step 3.
[TOC]Step 3: Obtain an Employer Identification Number (EIN)
When your nanny accepts the offer, head over to the IRS website to obtain a household EIN. You only need your SSN or taxpayer ID to get started. (PS: If this is all starting to feel a bit complicated, Poppins can just set you up with an EIN when you sign up.)
[TOC]Step 4: Register for State Tax Accounts
The next step is to sign up with your state's tax agency to handle state employment taxes. Depending on your state, you may need to pay state unemployment insurance (SUI) or withhold state income taxes. Poppins’ Nanny Resources by State breaks it all down for you, making compliance with state laws easy if you choose to try compliance on your own.
[TOC]Step 5: Complete New Hire Reporting
This is an important step in the process of ensuring you are complying with the state requirements and involves submitting basic information to your state’s designated new hire reporting agency. You’ll want to have your nanny’s name, address, start date, and social security number on the ready. You’ll also want to include your EIN and complete this step within the first 20 days of employment.
[TOC]Step 6: Set Up Payroll
Now you’ll need a way to pay your nanny or caregiver on a recurring, regular basis. When it comes to managing payroll, you've got options:
-
DIY Approach: Free tools like Google Sheets can help you track hours and payments—perfect if you love spreadsheets and organizing details yourself. You can then write a check each week based on hours worked.
-
Payroll Service: Want to keep things simple? Platforms like Poppins Payroll can handle the calculations for the tax withholdings and create required documentation like paystubs, letting you focus on what matters most—your family!
With a sound payroll system in place, you can spot-check payment totals at any time, and your nanny has access and visibility to everything to ensure everyone is on the same page throughout their employment.
[TOC]Step 7: Obtain Worker’s Compensation Insurance
Most homeowner's insurance policies don't cover household employees, so a simple worker's comp policy ensures everyone's covered if accidents happen. Contact your insurance agent or check online providers—it typically takes just minutes to set up. While worker’s compensation insurance is not required in all states, it is a great tool to protect you and your employee in the event your employee suffers an on-the-job injury.
[TOC]Step 8: Understand How to Pay Nanny Taxes—Calculating and Withholding Taxes
The next step is to calculate taxes you owe based on your nanny’s gross pay. Poppins’ Nanny Payroll Guide recommends making quarterly estimated tax payments using Form 1040-ES. Here’s how it all breaks down.
Social Security and Medicare Taxes (FICA)
You must withhold 7.65% of your nanny’s wages for Social Security (6.2%) and Medicare (1.45%). As the employer, you’re also responsible for matching this 7.65% as an employer contribution.
Federal Unemployment Tax (FUTA)
The employer pays the FUTA tax rate of 6% on the first $7,000 of wages paid to your nanny. If you pay state unemployment taxes, you qualify for a credit, lowering the FUTA rate to 0.6%. Refer to IRS Publication 926 and Poppins Payroll Guide for detailed information breaking everything down for you even further. It includes all the required forms you’ll need to file by year-end, like annual reporting requirements (Form W-2, Schedule H) and the importance of filing state and federal quarterly reporting on time to avoid penalties.
Essential Nanny Tax Form Checklist
Paying nanny taxes requires submitting the appropriate federal and state forms to ensure compliance with tax laws. Here’s a summary of the key forms to be aware of:
- Form W-4: Have your nanny complete this when they start
- Form I-9: Verify employment eligibility (must be completed within 3 days of start date)
- Form W-2: Your annual report card of wages and taxes (due to your nanny by January 31)
- State-specific forms: Check your local requirements (every state has its own rules)
- Schedule H: Attaches to your tax return (the grand finale of nanny taxes!)
|
Example Nanny Payroll Calculation |
|
Let’s say your nanny earns $1,000 per week: Employee Taxes (withheld from the nanny’s paycheck):
Total Withheld from Nanny: $62.00 + $14.50 = $76.50 Employer Taxes (paid by the employer):
Total Employer Responsibility: $62.00 + $14.50 + $6.00 = $82.50, plus any applicable state taxes. |
[TOC]Step 9: Provide Paystubs and Maintain Records
Last but not least, issue regular paystubs and keep detailed records of payments and withholdings. Submit required tax forms quarterly and annually, such as Form W-2 to the Social Security Administration and Schedule H with your federal tax return.
[TOC]Common Mistakes to Avoid When Paying a Nanny
Setting up a nanny payroll ensures you establish a system for wages, hours, and tax withholdings. Some common pitfalls to avoid when paying your nanny legally are misclassifying your nanny as an independent contractor, not withholding required taxes, neglecting state-specific obligations, and starting their employment without a proper written contract.
|
Avoid: |
Instead: |
|
Misclassifying your nanny as a contractor |
Classify your nanny correctly as an employee |
|
Not withholding Social Security, Medicare, or other required taxes |
Keep employers and employees responsible for FICA taxes |
|
Neglecting state-specific obligations |
Stay in the know on what taxes you’re responsible for in your state |
|
Starting employment without a written contract outlining caregiver duties and responsibilities |
Have a written contract with your nanny that outlines pay, hours, scope of work, and ongoing expectations (Lean on a Sample Nanny Contract to guide your process) |
Want to be your nanny's superhero? Legal pay lets them build credit, access social security, and feel secure about their future. Clear pay stubs keep everything crystal clear- and that's a win-win for everyone!
[TOC]Building a Lasting Partnership with Your Nanny
While setting up legal payroll might initially seem daunting, it's a cornerstone of creating a strong, lasting relationship with your nanny. Think of it as investing in peace of mind—knowing your exceptional caregiver is protected, valued, and able to focus entirely on what matters most: nurturing your children's growth and development.
Go from paperwork to more peace of mind by allowing services like Poppins Payroll to handle all calculations, tax filings, and compliance on your behalf. Signing up will enable you to build that incredible bond between your family and your newest team member. After all, the best caregiving relationships are built on trust, respect, and doing things right from day one.
—————————————————
The content of this article is general and informational in nature and may not be appropriate for your specific circumstances. The information is not intended to provide legal or tax advice, and should not be relied upon without consulting with an attorney and/or tax professional.
