Tax Law and News Are Your Clients Subject to the Nanny Tax? Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Mike D'Avolio, CPA, JD Modified Mar 6, 2019 2 min read The “Nanny Tax” provisions do not affect the majority of taxpayers and most will probably not be impacted by it. However, oftentimes when it does apply, the taxpayer isn’t even aware of it. If you hire someone to work in your home, you may be subject to the Household Employment tax, also called the Nanny Tax. While full-time nannies commonly fall into the category of household employees, other household employees could also fall into this category, including the following: Part-time babysitters Caregivers for elderly family members Housekeepers Gardeners The thresholds for this tax are relatively low, so many people are required to pay these taxes and don’t even realize it. If you pay at least $1,900 in a tax year, or $1,000 in any quarter of the tax year to someone who both works in your home and whose tasks you direct, you are generally obligated to pay this tax. The key factor in determining if the person is a household employee, rather than a contractor, is the “whose tasks you direct” prong. If you control the work the individual does, and when and how they do it, then you direct their tasks. If the person uses their own tools and also works for others, they are typically considered a contractor, and not your employee. If the person you hire is your spouse or parent, then their services are exempted from this provision. If you meet the threshold for the nanny tax, then you are considered an employer and you need a Federal Employer Identification Number. This EIN will be different from your business’s EIN because the person you hire is an employee of your household, and not of your business. Obtaining an EIN is easy to do online. Since you are considered an employer, you must file a Form W-2 for your household employee. W-2s must be filed with both the IRS and a copy given to the employee by February 1 of the year following the tax year. If you have fewer than 20 household employees, you can file your W-2s for free online on the Social Security Administration’s website. If you are subject to the nanny tax, you will need to include Schedule H (Household Employment Taxes) with your Form 1040 tax return. This schedule generally computes a 21.3 percent tax on the wages you pay your household employee. This is your share of the tax burden for Social Security, Medicare and the federal unemployment tax. This is in addition to the income tax and self-employment tax that you already pay. You may also have to pay state unemployment tax for your household employee. Previous Post IRS, States and Tax Industry Combat ID Theft and Refund… Next Post Tax Tips for Small Businesses Written by Mike D'Avolio, CPA, JD Mike D’Avolio, CPA, JD, is a tax law specialist for Intuit® ProConnect™ Group, where he has worked since 1987. He monitors legislative and regulatory activity, serves as a government liaison, circulates information to employees and customers, analyzes and tests software, trains employees and customers, and serves as a public relations representative. More from Mike D'Avolio, CPA, JD Comments are closed. Browse Related Articles Tax Law and News Proper Hiring and Tax Withholding Guidelines for Domest… Tax Law and News How self-employed individuals and household employers c… Tax Law and News How Income Volatility Complicates Taxes and Planning Tax Law and News Open Enrollment for Marketplace Plans Ends Jan. 31, 201… Tax Law and News April 2023 tax and compliance deadlines Tax Law and News IRS Annual Inflation Adjustments for Tax Years 2018 and… Tax Law and News Tax Year 2016 Changes Related to the Affordable Care Ac… Tax Law and News IRS Annual Inflation Adjustments for Tax Years 2019 and… Tax Law and News IRS annual inflation adjustments for tax years 2020 and… Tax Law and News Tax Year 2015 Changes to the Individual Provisions of t…