Tax Implications
You hired a nanny this summer to keep your kids safe, happy, and entertained during the long, sun-drenched summer days when school’s out. The nanny can keep your children happy and entertained by fixing lunch, taking them to the pool, shuttle them to their swimming lessons, tennis lessons, the zoo and the like. But, what about tax implications?
The tax regulations regarding household help can seem daunting, but with a little guidance from Adams Accounting Solutions, you’ll see that being a responsible employer is well within your reach. Here’s a detailed explanation about everything you need to know about the tax side of hiring a nanny for the summer:
Why the IRS Cares About Your Summer Nanny
When you hire a nanny—even for just a few months—you’re stepping into the role of a household employer. That means Uncle Sam expects you to follow certain rules, similar to a business. It’s not just about adhering to the tax laws; it’s also about protecting yourself and your nanny from future tax-related headaches.
The IRS considers nannies (even summer nannies) to be employees, not independent contractors, if you control how and when they do their job. That means you can’t simply hand your nanny a check and call it a day. You’re responsible for tax withholding and reporting. But don’t let that scare you! Our experts at Adams Accounting Solutions can help you get through this, so relax and let us tackle the tax side of your nanny’s employment so you can enjoy your summer without a care.
The Nanny Tax: What Is It?
The so-called “nanny tax” is shorthand for the taxes you, as a household employer, are required to withhold and pay when you hire someone to work in your home. For 2025, if you pay your nanny $2,700 or more during the year (this threshold is adjusted annually), you are generally required to:
- Withhold and pay Social Security and Medicare taxes (FICA)
- Pay federal (and possibly state) unemployment taxes (FUTA/SUTA)
- Report all wages to the IRS
It doesn’t matter if your nanny is full-time, part-time, or just with your family for the summer. If you meet the threshold, these obligations apply.
Step-by-Step: Handling Taxes for Your Summer Nanny
So, how do you actually handle all this? Trust us at Adams Accounting Solutions to ensure you’re compliant with these responsibilities.
1. Apply for an Employer Identification Number (EIN)
Before you can legally pay your nanny, you’ll need an Employer Identification Number from the IRS. We can help you apply for the EIN which distinguishes you as an employer.
2. Collect the Required Paperwork
We will get you a Form W-4 (for federal income tax withholding) and Form I-9 (to verify employment eligibility) and you will need to get your nanny to fill it out.
3. Withhold and Pay Social Security and Medicare Taxes
For 2025, you and your nanny each contribute 7.65% of the nanny’s gross wages to Social Security and Medicare. You’ll withhold your nanny’s share from their paycheck, then match it with your own contribution. If you’d like, you can pay the whole amount yourself (it’s a nice perk but not required).
4. Consider Income Tax Withholding
You aren’t required to withhold federal income tax unless your nanny requests it, but it can be a helpful service for them. If your nanny asks for this, we can assist you in using the information from their W-4 to calculate the right amount.
5. Unemployment Taxes
In most cases, you’ll also be required to pay a small amount of federal unemployment tax (FUTA) and may owe state unemployment tax (SUTA) as well. These are paid entirely by you and are reported annually.
6. Provide a Pay Stub and Keep Good Records
Every pay period, you will need to provide your nanny with a pay stub showing gross wages, deductions, and net pay. The CPAs at Adams Accounting Solutions can guide you on keeping detailed records of all payments, taxes withheld, and hours worked, and we can develop the pay stub for you. Come tax time, having this documentation will simplify your return, so it is definitely worth it.
7. File the Required Tax Returns
At the end of the year, we will help you provide your nanny with a W-2 form so they can file their taxes. You’ll also file a Schedule H with your personal tax return (Form 1040) to report household employment taxes, and our professionals at Adams Accounting Solutions can handle both the W-2 and the Schedule H.
Perks and Possible Deductions
While it’s true that paying nanny taxes adds some cost and paperwork, it comes with certain financial and legal protections. For example, paying your summer nanny “on the books” may allow you to qualify for the Child and Dependent Care Tax Credit. This can offset a portion of your childcare expenses, saving you money when you file your return.
The credit covers up to 35% of qualifying expenses, with a maximum of $3,000 for one child or $6,000 for two or more. Remember, only work-related care qualifies, and you must provide your nanny’s Social Security number on your tax return.
Plus, being a legal employer helps your nanny build employment history and qualify for benefits like Social Security and unemployment insurance. It’s a win-win!
FAQ
- What if my nanny is a student or just working for the summer? Even temporary or part-time nannies are generally considered employees for tax purposes if you control how they work.
- Can I pay my nanny as an independent contractor? No—the IRS is very clear that most nannies are employees, not contractors.
- Do I have to provide health insurance or other benefits? Not unless you choose to, but offering extra perks can help you attract great caregivers!
- What if I pay my nanny less than the annual threshold? If you pay less than $2,700 (2025 threshold), you generally aren’t required to withhold or pay Social Security/Medicare taxes, but other rules (like minimum wage laws) may still apply.
Tips for a Stress-Free Summer Nanny Experience
- Trust Adams Accounting Solutions to handle your payroll. This will compute withholdings and filings for you and make your life much easier.
- Set clear expectations: Communicate hours, pay, duties, and breaks in writing before your nanny’s first day.
- Plan for taxes upfront: Budget for the employer’s share of taxes so there are no surprises at the end of summer.
- Stay organized: Keep digital or paper copies of all documents and payments. It’ll make tax season a breeze.
- Celebrate your legal compliance! You’re giving your nanny and your family greater security and peace of mind.
Hiring a nanny for the summer can be a lifesaver for busy families, providing your children with individualized care and fun while you work or take care of other responsibilities. While the tax obligations may seem intimidating at first, they’re manageable with a little organization and know-how.
Remember: taking the right steps ensures that everyone’s protected, happy, and set up for a successful summer. Plus, you may even save money through credits and deductions. So, embrace your role as a household employer, brush up on those tax forms, and get ready to enjoy the best summer yet!
Here’s to sunny days, smiling kids, and the peace of mind that comes with knowing the pros at Adams Accounting Solutions have got you covered when it comes to taxes. Contact us to get everything in order and enjoy your summer!