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Nanny Taxes

Is it appropriate for a family relative who is the family's nanny to file taxes as an Independent Contractor and have the family issue them a 1099-NEC?   This way, the family does not have to withhold or take out FICA.

3 Replies
Esther M
Employee Tax Expert

Nanny Taxes

Hi Jimmitro,

Your relative working as a Nanny qualifies as a Household employee if you control the work they do and how they do it and you pay them more than $2100/yr. That means they have to be paid as employee with all the FICA taxes withheld.  

Hiring Household Employees    The Tax Implications of Having a Nanny or Housekeeper 

 

Best regards

 

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TylerH_EA
Employee Tax Expert

Nanny Taxes

Hello @jimmitro,

The IRS and the Department of Labor have strict rules that individuals and businesses must follow when determining whether or not someone who works for them is an employee or an independent contractor. It is not something that you can decide arbitrarily to avoid paying employment taxes.

Generally, when you hire a nanny, they will be considered a household employee and depending on how much you pay them, you will be subject to employment tax obligations such as withholding and remitting Federal Income Tax, FICA taxes,  and Unemployment taxes. You should review this Topic No. 762 from the IRS to guide you in making the correct determination. Classifying someone as an independent contractor when they should be an employee should not be done simply to evade an obligation to pay employment taxes. 

Also consider the following from the IRS:
Hiring Household Employees

Publication 926 (2023), Household Employer's Tax Guide

Warm regards,
Tyler H.
Enrolled Agent (EA)

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Terri Lynn
Employee Tax Expert

Nanny Taxes

Great question, jmmitro!

This common question about  household employmee's, is whether a family can provide their nanny a 1099 at tax time and consider them an independent contractor rather than a household employee.

 

The short answer is “no.” Your nanny works in your home and takes direction from you including the schedule of hours. You can’t give your nanny a 1099 and you should be providing a W-2 for your in-home babysitter or nanny because 1099 forms generally report payments made “in the course of your business” and not your personal payments. Wages paid to a nanny are not considered business-related, therefore a  Form-1099 does not apply to household employment..

Furthermore, the IRS considers nannies to be employees of the family and not independent contractors.

From IRS.Gov:

""Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee. Repairmen, plumbers, contractors, and other business people who provide their services as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but also how they do it."

 

jmmitro wrote "the family does not have to withhold or take out FICA."

This is correct ,if you were to pay your nanny, with a 1099, the entire tax burden would be shifted to the nanny, and eliminate most of the paperwork and responsibilities that come with being an employer, however, treating your nanny or babysitter, as an independent contractor, and not an employee is considered employee misclassification. The IRS deems this as tax evasion, and as a result you could owe back taxes, interest, and fines, which can easily run into thousands of dollars. That having been said one should not issue their nanny a 1099, and if required  you  should   provide your nanny with Form W2, if the following are true:

  • Pay them $2,600 or more in 2023 (or paid them $2,400 or more in 2022) or;
  • Withheld federal taxes regardless of their wages

Form W-2 must be provided to your nanny by January 3 and a  copy of Form W-2 and a Form W3 should be  submitted to the Social Security Administration by that date, as well.

 

For additional information pertaining to this topic, please check out these articles:

Thank you and please reach out with any additional questions you may have.

 

 

 

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Terri Lynn H.
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