Question: Can I hire my nanny as an employee through my business?
Answer: Unless, you run a nanny business, the answer is a strict no.
According to the IRS, the rules are strict and clear that you cannot hire your nanny under your business as an employee. When you hire a nanny to come to your home and provide the services, you are considered a “household employer”.
As a household employer, you will need to:
- Obtain an Employer Identification Number (EIN) with the IRS
- Register with your state to obtain the appropriate Employment Tax Account in order to properly pay the unemployment taxes
- Withhold taxes from your nanny’s pay
- Issue a W-2 to your nanny at year-end
- File the state unemployment tax report and pay the applicable taxes
- Pay the employer taxes
- Obtaining the Employer Identification Number (EIN) with the IRS is immediate and free. You can do so here
- You need an EIN because you would be considered an employer. Therefore, you need an identifying number as the payer of the nanny.
- Registering for employment tax account is done at the state-level. You’ll need to register in order to report the nanny’s employment and pay applicable employment taxes.
- Each pay-period for the nanny, you’ll be required to withhold social security and medicare taxes. The nanny can choose whether they would like federal income taxes or state taxes (if applicable) withheld. However, the withholding of the social security and medicare taxes are a must. These taxes that are withheld from their pay will be your responsibility to send these in to the IRS/state on their behalf.
- At the end of the year, you’ll issue a W-2 earnings statement to your nanny summarizing their pay and taxes held. This should be issued to your nanny by January 31st. A copy of the W-2 information will also need to be filed with the IRS/Social Security Administration.
- You’ll then need to file the employment tax report with your state and pay the unemployment taxes.