More Nanny Taxes
Taxes are stressful. They seem overwhelming and confusing when you’re just starting out, looking at piles of invoices and receipts. On top of that, there is so much conflicting information about what is and isn’t legal. They are just so confusing!
But, all that being said, once you start to get your hands dirty, dive in, and learn just a little bit everything will start to come together.
I was recently on the Chronicles of Nannya podcast with Martha Tyler and we talked all about taxes. You can read this article, then go ahead and listen to the whole interview for a few extra nuggets.
What is a “household employee?”
A household employee means that you’re working in someone’s house and they’re your boss. You clock in, you clock out. They call the shots. Not all nannies are employees, but trust me, the vast majority of nannies are.
A household employee will usually have their share of income taxes deducted from their weekly checks, while their employer pays the other half of the tax. At the end of the year, the employee will receive a w2 telling you how much you earned and how much in taxes you paid.
Some nannies are considered “independent contractors”. Such a nanny is not under a boss, and is in complete control of how, when, and where they do their job. These contractor nannies are few and far between. Most nannies working as contractors are Newborn Care specialists. The few others are fringe nannies who operate larger businesses around their nannying work. These contractor nannies do not share the tax burden with their clients, but take on all the tax expenses.
How do you know if you’re an “independent contractor” or a “household employee?”
The IRS has a great rule of thumb: [generally] “an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done or how it will be done.”
Rarely does a nanny wield that sort of authority in the nanny/family relationship. Be aware that most of you reading this will be considered employees.
Why should nannies be paid on the books?
It’s the law. That’s the number one reason. Getting paid under the table, or filing incorrectly literally makes you a criminal. But, being a good citizen is not the only reason.
Paying on the books brings benefits such as:
- making it possible to get loans for a car or apartment
- having a record of legal employment history
- possible health care benefits
- getting unemployment.
Many nannies missed out on getting unemployment because they were being paid under the table and had not accrued any unemployment benefits.
When you’re paid legally, you have proof that you did the work and that will help excel your career in the future. It will also give you the means to invest in yourself as a nanny.
How can nannies start getting paid legally?
First and foremost, know your worth. You do an important job and should be properly compensated for it as a professional. Knowing that, it’s important to be willing to walk away from a family that doesn’t recognize your worth. If a family will not or cannot pay you legally, you need to be prepared to walk away.
just remember “Not my circus not my monkeys.” You don’t have to take care of them.
If a family paid you as a contractor, but then tries to pretend you were an employee to get a tax break, don’t give them your social security number. They need to properly claim you and pay their share of the taxes to get that write off.
Asking your nanny family to change how they pay you can be a difficult conversation, but it is important and hugely beneficial. Not only does it help you now, but it helps to set the precedent for future nannies to be paid fairly.
Here’s an example of what you could say: “As a household employee, I should receive a w2. I need it by January 31’st or February 15th at the latest to properly file my taxes.” Go ahead and copy this and send this to your family if you need. If they have a hard time with that, just remember “Not my circus not my monkeys.” You don’t have to take care of them.
Here’s another example: “I’ve recently decided to make nannying my career. So I’m stepping up my professional game with contracts, invoices, and everything else. I went ahead and drafted up a contract for us that includes everything that I’ve been doing, and I’ve included a compensation and taxes section that describes your responsibilities for this tax year. Could you go ahead and look this over?” Saying something like this will go a long way with easing the blow.
If they refuse, download form 4852, it is a w2 substitute you can use if your employer refuses to issue you a w2. But, know that the IRS will question the family and make them pay their taxes. This will likely burn some bridges.
What if the family hands you a 1099? Tell the family “I was under the impression I would be getting a w2. Let’s start using w2s for this coming tax season.” In the meantime, you can file a 8919 form. Use form 8919 if you were an employee but were treated as an independent contractor by your employer.
The 8919 form lets the government know that there was a misunderstanding, no one was trying to commit tax fraud, and next time everything will be filed correctly.
Set the standard during the interview.
Many of these problems can be taken care of before your first day by asking the right interview questions. Remember, you’re interviewing them as much as they’re interviewing you. You should be asking them as many questions as they’re asking you. If you need some help, check out my contract questionnaire and walk through that with your family during the interview.
Ask them who’s going to be responsible for these taxes. Or better yet, just tell them “I want to be paid on the books as a household employee. Here’s how to do that…”
Most families don’t realize they’re about to be employers. Give them the resources they need so they feel at ease about the situation.
More Nanny Tax Resources
This article is by no means the only resource out there to help you conquer your nanny taxes.
All of these have articles, podcasts or videos about nanny taxes. For some more links to official sources, check out this article.
I know taxes are hard. If you’re looking for a little extra help, reach out to me for a nanny mentorship session at ohsosimply.com/shop.
You’re a rockstar and you can do this!