Navigating Taxes as a Nanny

Navigating taxes as a nanny can feel overwhelming, but understanding the key details is essential for protecting yourself and your career. From knowing whether you’re classified as an employee or independent contractor to properly filing your taxes, staying informed ensures compliance, benefits eligibility, and financial security. This guide will break down the essentials of nanny tax obligations, including paycheck deductions, tax filing tips, and the risks of being paid under the table, so you can confidently handle your finances and establish yourself as a professional in the field.

1. Employee vs. Independent Contractor:

• Nannies are classified as household employees under IRS guidelines. Families are responsible for withholding and paying payroll taxes.

• You should receive a W-2 form at the end of the year. If a family offers you a 1099, it’s a misclassification that could lead to legal issues for both parties. Discuss proper classification with the family if needed.

2. Paycheck Deductions:
   • Employers withhold Social Security and Medicare taxes (FICA)—7.65% of your gross pay—and may also deduct federal and state income taxes if agreed upon.
   • Employers pay the other half of FICA taxes (another 7.65%) and cover unemployment insurance taxes.
3. Filing Taxes:
   • When filing your taxes, use the W-2 provided by your employer. Double-check that:
     • Your name, address, and Social Security number are correct.
     • The wages and withholdings match your pay records.
   • File federal income taxes, and, if applicable, state income taxes.
4. Risks of Being Paid Under the Table:
   • Cash payments might seem easier, but they could hurt you in the long run by:
     • Losing Social Security benefits: Contributions determine future retirement benefits.
     • Missing unemployment benefits: Without reported earnings, you can’t qualify for unemployment insurance.
     • Lacking legal protections: Proper documentation ensures safeguards for you and the family.
5. Deductions for Nannies:
   • Keep records of work-related expenses that may qualify for deductions, like:
     • Mileage for driving children.
     • Out-of-pocket costs for supplies or meals for kids (if not reimbursed).
   • Consult a tax professional to ensure you claim appropriate deductions.
6. Stay Organized:
   • Track all pay stubs, receipts, and benefits provided (e.g., health insurance or paid time off).
   • Keep copies of contracts or agreements outlining pay and benefits for easy reference.
7. Get Help:
   • Consider using tax preparation services or software designed for household employees.
   • Agencies and nanny networks often provide tax guidance. Families may also use payroll services to handle tax deductions.

Why Paying Taxes is Important

Filing taxes legally establishes you as a professional in the field and ensures:

• Eligibility for future benefits like Social Security and unemployment.
• Legal compliance for both you and your employer.
• Peace of mind knowing you’re protected and doing things the right way.

By staying informed and organized, you can confidently handle taxes and build a solid financial future as a professional nanny. Have questions? Reach out to our The A Perfect Fit Team, they are happy to help!