Should I claim my in-home teacher/nanny as an employee or as a child-care provider?

[LoganP]

We paid the child-care provider $5700 and more than $1000 in one quarter. Any advice?

[Coleen3 · Accepted solution]

Yes, she is your Household employee. You will need to issue her a W-2 and file a Schedule H to pay the employment taxes for her. You can take the child care credit based on the amount you paid her as well.

Here is a quick breakdown: If you paid your nanny $2,000 or more in 2016, you should withhold and pay Social Security and Medicare on all of her wages. If you paid your nanny $1,000 or more in a quarter in 2016, you must pay the federal unemployment tax, or FUTA. (You may also owe state unemployment taxes.)

Generally, for 2016 and 2017, an employer needs to pay Social Security and Medicare taxes for “cash wages” of $2,000 or more paid to any one employee. Cash wages refer to checks, money orders and the like. They don’t include “the value of food, lodging, clothing, transit passes and other noncash items you give your household employee.” But cash given to an employee in place of those items counts as cash wage.

Don’t count wages paid to your spouse or your child under 21, the IRS says. Wages paid to your parent typically don’t apply, either, although there are exceptions.

Don’t count wages paid to an employee under 18 at any time during the year, unless providing household services is “the employee’s principal occupation,” the IRS says. 

[LoganP]

Thank you!! This helps so much!