We recently hired a part time nanny to take care of our infant while both me and my wife work. So far I've just been paying her cash, but I saw there's an opportunity to claim a credit when filing taxes.

Should I switch to paying via check so everything is more documented? Do I take on any extra liability by making her "an employee of my household"? Am I required to do anything if it becomes more official like that (file any forms, get something in writing, provide her with anything extra)? Do most Nannies readily give out their social security numbers to families they work for?

I imagine you crossed the $600 1099 threshold. If in Texas, issuing one of those to the nanny and reporting it to the IRS is probably sufficient in itself. Not sure if you get audited in a few years if it holds as much weight by itself.

We personally tracked our nanny's hours for a while but I've slowed down on being good about updating that. Never felt like doling out the $$ to one of the online platforms to help manage the payroll process for a household nanny either. If you are in TX or another like state just be thankful that you can 1099 it and don't need to get an EIN and give the nanny a W-2, regardless of pay amount.

I do quarterly wage reports and tax payments, but I'm not sure if that's just a state by state deal.

Oh yea, I forgot to add. Because of where we live we also needed to get workers comp insurance since we had to get an EIN and W-2 our nanny. We got the insurance rolled into our home insurance.

Not my area of expertise but Turbo Tax has this in their "key takeaways" with regard to the nanny tax.

- If you're a nanny or other worker who cares for others' children in their home, the IRS likely considers you a household employee, not an independent contractor.
- As a household employee, your income is subject to federal and state income taxes, FICA taxes (Social Security and Medicare), and your employer is required to pay FICA taxes as well as federal and state unemployment insurance.
- If your employer pays you more than $2,600 in 2023 or $2,700 in 2024, they are required to collect and pay the employee portion of Social Security and Medicare taxes on your behalf.
- In addition to paying Social Security and Medicare taxes, your employer is required to report your wages to the Social Security Administration so you earn eligibility credits.

Looks like the threshold for W2 status is $2700 for this year.

Chipotlemonger said:

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I imagine you crossed the $600 1099 threshold. If in Texas, issuing one of those to the nanny and reporting it to the IRS is probably sufficient in itself. Not sure if you get audited in a few years if it holds as much weight by itself.

We personally tracked our nanny's hours for a while but I've slowed down on being good about updating that. Never felt like doling out the $$ to one of the online platforms to help manage the payroll process for a household nanny either. If you are in TX or another like state just be thankful that you can 1099 it and don't need to get an EIN and give the nanny a W-2, regardless of pay amount.

I do quarterly wage reports and tax payments, but I'm not sure if that's just a state by state deal.

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Quarterly payroll reports are a federal and state requirement. In Texas you're submitting a federal 941 and a Texas C-3.

For the record states don't determine whether a job can be 1099 or has to be W2, that's a DOL thing. States have their own requirements but they don't trump federal law. The basic rule I've always followed is do you tell the person what to do, when to do and where to do? If so they're W2. The reality is more restrictive than that but that's a good place to start. There's proposed new rules being evaluated that would further curtail the use of 1099 status and push even outside sales people to W2 payrolls or increase the use of SCorps to avoid the 1099 reporting requirements. That aside I can't see a world where a nanny is going to pass even the "good place to start" list I gave above.

Interesting, I assumed the W-2 requirement for us was state-driven and not universal. I haven't brushed up on the specifics for a couple of years now.

Mind blown at all this

How do they expect the average family to know/do all this?

They won't. They'll pay cash unless they're income is high enough that paying their CPA to figure it out. Or they'll use venmo enough until Venmo reports the income then they have to figure it out.

Ridge14 said:

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Mind blown at all this

How do they expect the average family to know/do all this?

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Don't get me wrong...this is all a perfect example of how ****ed up the tax system is.

But don't think the average family is having to worry about if their nanny should be 1099 or W2.

Ridge14 said:

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Mind blown at all this

How do they expect the average family to know/do all this?

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We learned as we went. Definitely was behind the ball for a while while figuring it all out.