How Taxes Work for a Summer Nanny
By Stephanie Breedlove, Breedlove & Associates
The school year is nearly out for most of the country and many parents have hired nannies to watch their kids for the summer break. If you’re one of these nannies, congratulations on finding employment for the next few weeks! Because this is such a short-term arrangement, you may be wondering how to handle your wages for next year’s tax return or how taxes even work in your situation. Well, here’s what you need to know:
1. You’re an employee, not an independent contractor. When you work for a family in their home, you’re considered the family’s employee. It doesn’t matter that the job lasts for only a few weeks instead of year-round. Many families try to treat their summer nanny as an independent contractor by giving them a 1099 at tax time. But the IRS says this is illegal and it will cause you to pay twice as much in Social Security & Medicare (FICA) taxes.
2. If you’ll earn $1,900 or more from a family, they need to withhold taxes. Specifically, the IRS requires FICA taxes to be withheld each pay period and it’s recommended you also have federal and state income taxes withheld (assuming of course you live in a state with income taxes). It’s not explicitly required for income taxes to be withheld, but if the family doesn’t do this, you’ll owe these taxes when you file your personal income tax return, which can cause you to have a significant tax bill instead of a refund. Depending on what state you live in, the family may also be required to withhold additional taxes.
3. If you don’t earn $1,900 from a family, you’re still responsible for taxes. You may find yourself working for multiple families during the summer, but none of them pay you more than $1,900. These families won’t have to withhold any payroll taxes from you, but you’re still required to report the wages you earn to the IRS when you file your taxes. Make sure you track the total amount you make from every family you work for as you’ll report this as “Other Income” on your personal income tax return.
4. Don’t worry if the family asks for your Social Security number. You may find it strange that the family is asking for such a delicate piece of personal information, but there’s no reason to worry. They most likely need your SSN because the Child or Dependent Care Tax Credit (IRS Form 2441) requires them to input your Social Security number on the form. The family gets a credit on qualifying childcare expenses and the wages they pay you as a nanny qualify. They may also need it to file a state unemployment insurance tax return, but again, this has no bearing on your personal tax situation and won’t compromise your identity.