Hiring the perfect nanny is the hardest part, but there’s one more important task — setting up your payroll correctly.
But where do you start?
Confirm You Are Required to Report
Before you start the payroll process, you want to be sure you are required to pay the “nanny tax.” Some nannies work part-time or unusual hours making many families unsure of their exact legal and financial obligations. The simple approach is to take a look at your nanny’s wages. Does it add up to $1,900 or more in a calendar year? If so, you are required to withhold Social Security and Medicare taxes from their paycheck and pay employer payroll taxes.
Talk to Your Nanny
Paying the “nanny tax” has an obvious impact on your nanny’s take-home pay. You’ll want to make sure the compensation is defined with both gross and net figures, so your agreement is clear. Take the time to have a candid conversation about how you plan on handling her paycheck, taxes, overtime pay, holidays and other details. We recommend creating at least a simple nanny contract to make your agreement official and avoid future disputes.
Yes, you can handle the nanny tax process on your own, but this means an estimated 50 hours of preparing tax returns, performing complex calculations, and studying the ins-and-outs of federal and state household employment tax law. We are experienced in this highly-specialized area of tax law. Gebhard & Giguere LTD can even provide direct deposit for your Nanny.
Gather the Necessary Documents
To set up payroll service, you’ll need to pull together certain information about you and also your employee.
Your primary contact information
Social Security number
Federal and state tax information
Your employee’s compensation
Any payroll payments you’ve made to-date
Bank account information
If you file “Married Filing Jointly,” your spouse must also provide their personal information
For your employee:
Social Security information
Federal income tax withholding selections
State income tax withholding selections
Bank account information should they want to be paid through direct deposit.
Verify Worker Eligibility
Set up a Regular Pay Schedule
Determine how often he or she wants to be paid (weekly or bi-weekly) and calculate how much must be withheld each pay period. Make sure your nanny understands what this means in terms of her net salary.
Handle Overtime Correctly
If you don’t use a payroll service, you’ll need to make sure to manage any overtime correctly. If your nanny works over 40 hours in a week, you must pay them time-and-a-half for the hours over 40. Live-in nannies generally are not entitled to overtime, but are simply paid for every hour they work (Note: there are special overtime requirements for live-in employees in New York, Massachusetts, Maryland, Maine and Minnesota.).
File Quarterly Employment Tax Returns & Year-End Documents
If you handle payroll on your own, you’ll need to keep track of the wages paid (and taxes withheld) so you can file state and federal employment tax returns. The state and federal deadlines are different, but generally, they are due on a quarterly basis. At the end of the year, you’ll provide a Form W-2 to your employee, file a Form W-2 Copy A/Form W-3 with the Social Security Administration, file a state annual reconciliation (most states) and file Schedule H with your federal income tax return.
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