{"id":4900,"date":"2025-09-22T18:02:59","date_gmt":"2025-09-22T18:02:59","guid":{"rendered":"https:\/\/s37407.p1377.sites.pressdns.com\/resources\/setting-up-nanny-taxes-payroll\/"},"modified":"2025-09-22T18:09:31","modified_gmt":"2025-09-22T18:09:31","slug":"setting-up-nanny-taxes-payroll","status":"publish","type":"post","link":"https:\/\/www.care.com\/c\/setting-up-nanny-taxes-payroll\/","title":{"rendered":"How do you pay a nanny legally? All the info, from taxes to payroll"},"content":{"rendered":"

Congrats! You’ve found a nanny you’d like to hire. Now what? Once your nanny accepts your job offer, your responsibilities as an employer begin. That means putting the terms of your working relationship into a nanny contract<\/a>, deciding on benefits and setting up payroll. It also means complying to state and federal regulations, including what many people call “nanny taxes.”<\/p>

Nanny taxes refer to the federal and state payroll and tax responsibilities families have to manage when they hire a nanny to work in their home. While complying to these state and federal laws means you won’t be at risk of being slapped tax evasion fines, there are benefits for the caregivers, too. Nannies become eligible for state unemployment benefits, and a traceable payment history enables them do things like apply for credit cards, rent an apartment or lease a car. “We actually have nannies approaching us to work for us because we pay legally,” says Paul Cuthbert, of Newport, Michigan, who has hired several nannies. “It costs a little bit more than not paying legally, but it is so worth it.”<\/p>

Follow this simple compliance checklist, and you can meet the requirements laid out in the IRS Publication 926<\/a> and your state.<\/p>

Key takeaways<\/h3>
  • Nannies should be classified as household employees and obtain federal and state employer tax IDs.<\/li>
  • Nanny employers need to file a New Hire report with their state, in addition to withholding income taxes, Social Security and Medicare taxes from their nanny’s paycheck.<\/li>
  • You can make quarterly estimated tax payments to the IRS to help manage your federal household employment taxes. A qualified tax preparer or financial expert can help you figure out how much to withhold, how much you owe and how to complete the necessary paperwork.<\/li><\/ul><\/div><\/div>

    Checklist: How to pay a nanny legally<\/h2>

    1. Your nanny should be classified as a household employee<\/b><\/h3>

    The IRS has ruled<\/a> that, with very few exceptions, nannies are employees of the families for whom they work — not independent contractors. This is regardless of the amount of hours worked, wages paid or what’s written in an employment contract. This means your nanny should be given a W-2 form<\/strong><\/a>, rather than a 1099 form, to file their taxes. Worker misclassification is considered a form of tax evasion and is a risk you should not be willing to take.<\/p>

    2. Obtain federal and state employer tax IDs<\/b><\/h3>

    In order to file returns with the IRS and the state, you’ll need to obtain a federal employer identification number (EIN), as well as state tax ID(s) for unemployment insurance and, if applicable, state income taxes. These tax IDs identify you as a household employer, and you should apply for them through the IRS<\/a> as soon as your nanny accepts your job offer.<\/p>

    3. File a New Hire Report with the state<\/b><\/h3>

    All employers are required to file a New Hire Report with their state immediately after each new hire. Find the agency that oversees new hire reporting in your state<\/a>.<\/p>