Tax tips for after-school nannies

After school nannies need to know about payroll taxes

Updated

When you provide after-school child care, you might not see yourself as an employee for the family you work for. After all, you're not working full-time for them — you're just helping bridge the gap for the hours between when school gets out and a parent gets home. But the truth is, you still may be considered a household employee: The IRS has a specific set of parameters that determine not only whether you’re the family’s employee, but also if taxes need to be a part of the working relationship.

 

Here’s what you need to know about “nanny taxes” and what to expect if they're part of your payroll every week.

 

What are nanny taxes?

The nanny tax is a catch-all term for the payroll and tax responsibilities families take on when they hire a nanny, senior caregiver, personal assistant or even an after-school sitter. It applies to people who earn $2,100 or more during the calendar year from a family and qualify as an employee based on IRS-established guidelines that are detailed below.

 

"It doesn't take long for an after-school caregiver to reach $2,100 in wages," says Tom Breedlove, Sr. Director of Care.com HomePay. "Even if you're only earning $150 per week, you'll be above this threshold in just over three months."

 

If you believe you’ll earn more than $2,100 from the family you’re working for, get ahead of the game by learning about how payroll and taxes work so you won’t be caught off-guard when the family has this conversation with you.

 

How do I know if I’m the family’s employee?

If you report to a family's home to take care of the kids at expected times every day (meaning you can't just show up when you want to), you perform the duties as specified by the parents (you take the kids to their ballet lessons and soccer games and not to the movies) and you follow the parents' directions (they want you to offer healthy snacks and not cake when the kids get home) the IRS will most likely say you’re the family’s employee.

 

With this classification, you’ll need to receive a W-2 from the family during tax season so you can file your personal income tax return. Some families mistakenly believe an after-school sitter meeting the qualifications above can be classified as an independent contractor, but this is the wrong course of action. Read our article on why caregivers shouldn't get a 1099 form for more information.

 

Why go through all the work of dealing with taxes?

The obvious answer is it's the law. Yes, the initial legwork of getting set up on payroll can be a hassle, but once that’s accomplished, it's easy. Being paid legally actually helps you both in the short and long-term. Aside from not having to worry about getting caught evading taxes by the IRS, you’ll establish a traceable employment history that is required for things like an auto loan or renting an apartment. Additionally, you’ll be eligible for unemployment benefits if you’re let go due to no fault of your own and you’ll be building credits toward your retirement income with the Social Security Administration.

 

"Caregivers don't often think about these benefits until they're needed. When they are, people who are paid legally are glad they had taxes withheld from day one," says Breedlove.

 

So even if you provide after-school care and are not a full-time nanny, it’s likely that the nanny tax still applies to you. Getting on the right track for paying taxes when you start your new job helps both you and the family (or families) you work for.

 

Your Next Steps:

 
* The information contained in this article should not be used for any actual caregiver relationship without the advice and guidance of a professional advisor who is familiar with all the relevant facts. The information contained herein is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for your specific circumstances and may require consideration of other matters.

 

29 Comments

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Photo of Tammy B.

Tammy B.

Great information, Thanks!
September 20, 2014 at 10:28 PM
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Tom B.

Hello Yolanda. As long as your hours stay consistent, it doesn't appear you'd be subject to tax withholding because your gross wages won't exceed $1,900. From 10/6 through 12/31, you'll earn a little less than $1,700 if you work 10 hours per week. However, please let the family know that if you start working as little as 2 more hours per week consistently, you will cross over the $1,900 threshold and all the "nanny taxes" will apply. I hope you enjoy your new part-time job!
September 15, 2014 at 11:05 AM
Photo of Yolanda K.

Yolanda K.

Hi. I am starting a part time job:10 hrs/week at a rate of $13 per hour, on Oct. 6. Could you please tell me if I should ask the family for the nanny tax? Thank you for your help.
September 15, 2014 at 12:37 AM
Photo of Tom B.

Tom B.

Hello Dawn. I'm sorry to hear the family isn't paying you on the books. Unfortunately what you're describing sounds like you're trying to file as self-employed and as a nanny, that's actually the wrong classification. You're an employee of the family you nanny for and they should be the ones withhold taxes from you, issuing you a W-2, etc. Since the year is not complete, the family actually has time to get their taxes and your taxes in order before it's too late. I would read the following article and have a conversation with the family about why paying on the books is the best thing for them and for you. Yes, it can be hassle, but it's the right thing to do. (https://www.care.com/a/4-ways-to-get-your-employer-to-pay-you-professionally-1209170102)
September 08, 2014 at 11:40 AM
Photo of Joni K.

Joni K.

I do know if you are claiming it as a self employed, you will be charged a higher tax. A lot higher tax ! So stay away from that!
September 08, 2014 at 9:59 AM

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